Business Advisory is a very broad area. One of the key components of Business Advisory is the compiling and understanding of financial statements. Using Key Performance Indicators (KPI) is a vital part of successful Business Advisory.
It is important to meet with your accountant on a regular basis to discuss your trading results and matters of importance which you need to be aware of for the effective operation of your business. Your accountant should help you interpret your periodic reports, examine your KPI’s and examine your operation.
KPI are a critical tool in measuring your business performance. It is important that the your KPI are:
- Specific;
- Measurable;
- Acheivable;
- Relevant; and
- Time Frame, is put in place.
KPI is essentially a performance measurement. A KPI is a metric typically used on a business to assist on measuring its performance.
Popular KPI for accounting and financial management include:
Revenue Growth: This is a measurement of how well an organisation grows its fee / sales base. It is calculated by taking the difference between the current sales amount to the previous sales amount and dividing by the previous sales amount.
Cash Conversion Cycle (CCC): Measures the total number of days from the payment of cash for goods and / or services until the receipt of cash for the same goods or services.
Gross Margin %: Gross margin is net sales less the cost of goods sold. Generally selling and administration expenses are disregarded. The gross margin percentage is calculated as (Net sales – Cost of goods sold) / Net sales.
Overhead %: Can be calculated as total overheads / total revenue.
EBIT %: Can be calculated and earnings before interest and tax (EBIT) / revenue.
EBITDA: Earnings before interest and tax / (EBIT) + Depreciation & Amortisation.
Net Profit %: Net profit after tax / revenue.
If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com
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