The strategic financial indicators that every business must watch (and manage actively) to be successful

If you are a business owner or a director appointed to a position responsible for growth, you must be very vigilant in steering the business unto the path of growth. This may be easier said than done as you may not be familiar with the most important indicators which are financial indicators.

Financial indicators tell a lot about a business. It can act both as a leading and lagging indicators. As such pro forma exercises done to project the outcome of any business project or venture can be very useful.

Strong and useful usage of financial indicators comes from periodic update of information and data to simulate the likelihood of an outcome. In fact it does not even necessary need to be very technical in order to reap the benefits from financial indicators.

Here we will explore the three most commonly known financial information in the Income Statement, Balance Sheet and Cashflow Statement. These key focus areas in each of the financial information are key indicators for your business to compare to past trends, upcoming trends and industry or competitors performances.

1.  Income statement: in this financial information there are 3 key indicators to look at;

  ░ Growth – this is a very important indicator as if it is increasing (it shows potential) or if reducing (it shows weak market or competition). Is it showing a positive sign or not?

░  Margins – strong margin show strong management in cost of goods sold or services provided. This is an important indicator since mostly these are direct cost impacting the business margin. Is margin growing or declining?

░  Profitability - healthy margin is highly necessary to build and expand your business. It show strong demand for your products and services. Is profitability being eroded more and more?

2.  Balance sheet: in this financial information there are 3 key indicators to look at;

 ░  Liquidity – this is the lifeline measurement of your business continuity. It is a very important indicator to watch out and if where immediate action is required, don’t wait.

░  Property assets – this category of asset must be income producing in nature since these are big capital and maintenance items. And remember not to over commit!

░  Credit metrics – this metrics relates to your working capital which is highly influence by when your business gives credit or you are given credit. The balancing act of this metrics will determine your business continuity as poor management will choke your business.    

3.  Cash flow statement: in this financial information there are 3 key indicators to look at;

 ░  Cash Flow from Operations - represents the amount of cash your business generates (inflow) or consumes (outflow) from carrying out its operating activities over a period of time. A net outflow cannot be a long term trend, otherwise your business will suffocate under cash insufficiency.

░  Cash Flow from Investing - is a section of the cash flow statement that shows the cash generated or spent relating to investment activities. It is not unusual for your outflow to be higher than inflow if you are investing to grow your business.

░  Cash Flow from Financing - is a section of your business which shows the net flows of cash that are used to fund the company. Any outflow may relate to dividend payments or debts repayment and an inflow could refer to equity issuance. In deciding the outflow or inflow it must relate to your business outlook plan.

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If you are too busy to focus on so many other indicators, just focus on those mentioned above. These are the strategic financial indicators that every business must watch and manage actively to be successful and avoid financial pitfalls.