8 Key Cash Flow Metrics & KPIs Every Business Should Track

cash flow kpis

It is important to differentiate between liquidity and cash flow as they are not synonymous. A company may have negative cash flow yet remain highly liquid if it possesses a substantial cash reserve. The accounts receivable turnover ratio, also referred to as the debtor turnover ratio, provides valuable insights into the effectiveness of your company’s debt collection process.

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Note that most online brokers—and several financial data platforms freely available online—publish the top ratios for you, making them easy to review. The cash conversion cycle (CCC) measures how swiftly your business transforms investments in inventory and accounts receivable into cash from sales. It highlights the efficiency of your cash flow management—balancing outflows to suppliers and inflows from customers. The accounts payable turnover ratio measures liquidity in the short term and represents the ability of a business to pay off its suppliers. It is calculated by subtracting the accounts payable balance at the beginning of the period from the balance at the end, and dividing the result by two. This metric complements your current accounts payable calculation by detailing how much money is owed to your company in a given timeframe.

  • Working capital gives a clear indication if a business can clear its short-term debts and is calculated by taking the difference between a company’s current assets and current liabilities.
  • It pulls live financial data right into your Excel or Google Sheets, runs the calculations, and updates everything automatically.
  • By integrating these prudent practices with the robust visualization capabilities provided by Brixx, businesses can obtain a superior understanding of their financial standing.
  • Current accounts payable is another vital cash flow metric that details the sum of all money your company owes at a given time.
  • At any given time, your working capital can be calculated from your balance sheet.

The 7 Essential Cash Flow Metrics Businesses Should Track

Here, we discuss our selection of the important KPIs for cash management every business should monitor. When KPIs reveal a discrepancy between actual and desired performance, take action to address the issues. This might involve adjusting strategies, cutting costs, increasing revenue, or other relevant measures. This makes it easier for stakeholders to cash flow kpis understand and interpret the information. Tools such as spreadsheet programs, business intelligence software, or specialized financial tracking software can help with this.

Tips to Reduce Your Cash Conversion Cycle

Raising business capital is one of the most critical challenges entrepreneurs face when starting or expanding a business. Traditional methods like bank loans, venture capital, and personal savings are well-known, but they often come with significant hurdles or… As unsung heroes of financial management, outsourced controllers can bring significant benefits that go well beyond basic bookkeeping. Selling a business can be one of the most transformative and emotionally charged decisions an entrepreneur will ever make. Whether you’ve been building it for years or inherited it from family, your business likely holds significant personal value. Don’t just look at the numbers; analyze what they mean for your business.

cash flow kpis

Top 10 Cash Flow Metrics and KPIs

  • They show whether the company is thriving or needs immediate intervention.
  • Days sales outstanding (DSO) measures the average number of days it takes your company to collect payment after a sale.
  • Variances help you to understand where your business went off track e.g. sales or operating expenses.
  • It is generally considered healthy to have a current ratio between 1.5 and 3.
  • Keeping track of the KPIs and metrics related to operating cash flow is critical to avoiding cash crunches, debt issues, and even bankruptcy.
  • Don’t lean on outdated spreadsheets and siloed data sources to manage your cash flow.

It takes into account how much time the company takes to sell its inventory, collect receivables, and pay its bills. If the cash flow coverage ratio falls below 1.5, it may suggest that the company has poor debt management practices or that it is struggling to make interest payments on time. Free cash flow represents the money available to a business to repay its creditors and pay interest and dividends to investors. It indicates the cash available to a business after paying short-term liabilities and investing in the necessary operational equipment.

Components of the cash flow statement

A higher APT indicates that your company may not be effectively using your credit terms, or your suppliers may not be extending favorable credit lines. A lower APT suggests that you are using your credit lines effectively; but a very low APT, like a low DPO, can cause friction in your relations with suppliers. A higher debt to equity ratio may be of less concern when a business is stable and growing but worrying if a business is in decline or hits a crisis.

If it increases, then this could mean there is a greater risk of defaults and may indicate a potential cash flow problem. For cash flow management, there are several metrics and KPIs which you can track. Use the ones that are meaningful to you and your business, to give you useful insights to help you manage your cash flow and grow your business.

cash flow kpis

An FP&A analyst investigates and finds the company’s main supplier has raised prices. The analyst recommends an alternative sourcing strategy to better control raw material expenses. Suppose another FP&A analyst tracks customer acquisition costs (CAC) against revenue to see whether the company’s marketing campaigns drove anticipated returns.

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