Whenever one decides to begin their entrepreneurial journey, there are many things that one is worried about. From being a newbie in the line of business to paving his or her path in the competitive world of startups, there is a struggle bound with anything you do. Luckily, today I will be explaining to you one of the things that might help you through your startup journey – a list of financial metrics that you should track to judge where your business stands on the progress graph.
Financial metrics are the most popular choice of metrics that are mostly used by business owners to check the progress of the business. The question, however, is – what are these financial metrics I have been mentioning since the beginning of this article?
List of financial metrics every business owner must track
1. Working capital and a current ratio
This is one of the parameters that help you measure liquidity. In simple words, it determines how fast the company can convert the assets it owns into capital. Working capital is calculated by measuring the difference between the current assets & currency liabilities whereas the current ratio is measured by dividing the current assets by current liabilities.
A current ratio below 1 is a serious problem. So, be very sure to measure these parameters for your company.
2. Quick ratio
This is another parameter that helps measure liquidity and is usually termed an acid ratio. This ratio reflects the company’s ability to pay all the liabilities using current assets. While calculating the acid ratio, the current liabilities number remains constant but current assets are chosen on the basis of how quickly they can be capitalized.
3. Debt-equity (D/E) Ratio
The third financial parameter that every business owner must measure to understand the standing of their business is the debt-to-equity ratio. This ratio helps you determine how much borrowed money has been invested in the company’s operations and the extent of coverage of debt by the shareholder equity when needed. It is highly important for one to look at the capital structure from the cost of capital, leverage, and risk angles.
4. Net Profit Margin
Another very important financial metric every business owner must track is the Net profit margin. It is used to measure the amount of actual profit that your company makes against the revenue it generates. There are many cases where the company’s revenue might increase over time but not the profit. In that case, you must be aware of the fact and work on improving that.
These are some of the most useful financial parameters that can help you determine the overall performance of your business. One good thing here is that most of these parameters (metrics) can be tracked using different financial management software. Many different AI-based financial tools are designed to make it easier for businesses to track their finances, invoicing, expenses, and cash flow, and even link a different bank account to a single platform. Seems interesting, right? I personally am using Paci. It delivers what it promises – A unified financial management software. The best thing about this software is that it has everything expensive tools like Quickbooks, Zoho Books, and Xero has… but in Budget!
