The Top 10 Accounting Indicators For Your Business

Building a successful business is like a marathon. You need to thoroughly analyze your accounting indicators on a regular basis to see if the parameters are on track. If you want to achieve sustainable growth every year, you need to monitor the accounting indicators that can help you design your growth strategy year on year. They also help ascertain if the business has achieved its goals during the planned time frame.

The top ten accounting indicators are detailed below.

  1. Return on Investment
    • ROI is the measure of the gains realized from an investment.
    • It is used to understand how profitable your investments are, and if your marketing efforts have paid results.
    • If the ROI is a positive percentage for an investment, it means that venture can be pursued to realize better results.
  1. Return on Equity
    • It is a measure of the profits realized from the shareholder’s investment.
    • Shareholders will be able to understand how and where their money is subsequently invested to create more profits.
  1. Return on Assets
    • It is a measure of how effective the business is at generating profits from invested capital.
    • The higher the ROA percentage, the higher the chance to generate higher profits.
  1. Working Capital
    • Working capital = Current Assets – Current Liabilities
    • It is a direct measure of your immediately available cash.
    • It helps meet short-term financial liabilities and may include cash available from receivable accounts or any short-term investments.
    • If your working capital ratio is greater than 1, it indicates that your company has the cash cover to recover from current liabilities.
    • If it is below 1, it means you’re operating in debt, while a ratio of greater than 2 shows that surplus assets are not being utilized for revenue generation.
  1. Operating Cash Flow
    • It is the total cash inflow of a business during a specified time period.
    • It is also an indication of whether the business has sufficient funds to operate with the current cash.
    • It has a direct bearing on the main business functions like salary, sales, inventory, etc.
  1. Current Ratio
    • It is the ratio of a business’s current assets and current liabilities.
    • Current assets = Any asset that can be readily converted to cash such as accounts receivable or inventory, within a period of one year.
    • Current liabilities = Any debts that are recorded on a balance sheet such as account payables, within a period of one year.
    • It is a measure of the liquidity, and an indication of the cash that is required to close financial obligations in times of financial emergency.
  1. Cash Flow Forecasting
    • As the name goes, this indicates the money that is expected to flow in and out of the business, over a period of time.
    • It includes all sources of income and expenses, over a period of time.
    • This is one of the most important metrics to track when you’re looking to expand operations.
  1. Gross Profit Margin
    • It indicates how much money would remain in sales, after deducting all the costs involved.
    • It is a good metric to assess financial stability, and how well the business model is being executed.
  1. Net Profit Margin
    • It is a measure of the net income and indicates how much percentage of the revenue is the business’s actual profit.
    • Monitoring net profit margin helps determine if the business is capable of scaling growth.
  1. Sales Target & Growth
    • It is an important measure of the sales team’s capability to increase revenue, over a given period of time.
    • It needs to be tracked to understand if the business can invest in other options.

Assessing the financial and accounting indicators gives insight into a business’s strengths and weaknesses. It also helps identify suitable opportunities for growth, and recognize threats that need to be overcome. Monitoring your accounting indicators is easier when you have experts handling your accounting. If you’d like to focus on your core business demands while skilled experts take care of your accounting, SmartFin can be the right partner.

SmartFin has over a decade of experience in end-to-end accounting services for small-to-medium businesses, helping them cut costs and scale growth and revenue. If you’d like to explore our services, please drop us a line.

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