What Are Key Performance Indicators and How Can KPIs Help?

What Are Key Performance Indicators and How Can KPIs Help?

Key Performance Indicators (KPIs) are financial and non-financial measurements derived from financial and non-financial data that tell you how your company is really doing. KPIs allow you to build better relationships with your key suppliers and customers because they enable you to measure your performance, and design improvement programs. There are several types of metrics on how manufacturers perform:

  • Quality metrics – include production efficiency, cut-to-ship ratio, and percentage of defective or returned products, ship to promise metric, shipping accuracy.
  • Service metrics – include customer retention, customer satisfaction ratings, on time in full, customer purchasing frequency, repeat customer rate.
  • Overall operational effectiveness metrics – include various efficiency ratios such as liability repayment, sales to inventory, fixed asset turnover, and other metrics such as visit to order time, sales order fill rates and buyer demographics.

 
There are also various financial ratios derived right out of your financial statements, including but not limited to:

Market Value Ratios:

  • Market value
  • P/E multiple
  • Market capitalization

Profitability Ratios:

  • Gross margin %
  • Sales, general & administration %
  • EBIT margin
  • EBITDA margin
  • Return on total assets
  • Return on capital
  • Return on equity

 
Efficiency Ratios:

  • Total asset turnover
  • Fixed asset turnover

Cash Cycle:

  • Days sales outstanding
  • Days payables outstanding
  • Days inventory outstanding

Liquidity Ratios:

  • Current ratio
  • Quick ratio

Leverage Ratios:

  • Debt / EBITDA
  • EBITDA / Interest Expense

Capital Structure:

  • Debt / Equity
  • Debt / Capital

How are these ratios defined? How do you choose ratios that are applicable to you that will allow you to drive your manufacturing business forward and improve your financial performance? What tools can you use?

Register for the upcoming financial workshop, How Manufacturers Can Save on Taxes and Measure Performance Using Financial Metrics, on Friday, May 10 to learn more.

About the Author

Larisa Rapoport, CPA, MBA, CGMA, is a partner with Squar Milner LLP (“Squar Milner”), a full-service accounting and business advisory firm with a recognized expertise serving middle market companies. Squar Milner holds the distinction of being one of the nation’s 50 largest public accounting firms as well as one of the largest PCAOB registered independent accounting and advisory service firms on the West Coast, with offices throughout California and the Cayman Islands. Our experience covers both the public and private sectors including publicly traded companies, closely held businesses, and specializing in manufacturers among other industries.

We provide a high level of partner/manager attention combined with a client service philosophy. Our approach includes solid technical expertise, including a high level of manufacturing and distribution industry knowledge and experience. We deliver outstanding results in a highly responsive, consultative, and cost-effective manner.

Squar Milner is a member of Allinial Global, an association of over 100 independent accounting and consulting firms. Based in North America, Allinial Global offers international support by connecting its member firms to providers and global networks of accounting firms worldwide.

Larisa Rapoport can be reached at lrapoport@squarmilner.com or 415.781.2500.

2019-02-28T03:29:51+00:00

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