Your financial statements are company performance indicators and are the ultimate report card of your business health. I can help you define key drivers, and a way of measuring them, while setting up a process so they’re in an evolving state of improvement. Have you defined the key financial performance metrics in your business that drive top line growth, bottom line growth and equity value? I recommend defining a minimum of two metrics from your balance sheet and income statement that represent key drivers of economic value in your business. A few examples to consider might be profit per employee, client acquisition cost, average sales value, number of leads to conversion rate, inventory days, distributors in force, return on capital employed etc.
Critical Financial Metrics
The critical metrics will depend on your business and industry, but it is important to conduct a financial performance analysis, to understand the key drivers behind your business, and clarify the impact of changes to these drivers and your bottom line through financial performance measurement and modeling. For instance, what is the cash flow impact if you increase sales by 20% or launch a new product line? Which strategies will maximize profitability?
I often recommend to clients seeking increases in enterprise value, to determine and consistently measure key foundational sources of value for their business, optimize strategy within this understanding, and then focus team energy toward constant improvement in those value drivers through the integration of team scorecards with corporate quarterly goals. I help clients turn numbers into knowledge and knowledge into sound business strategy. This in turn drives business productivity – increases in cash flow, profit and equity value.
For more information on how to improve your company’s financial performance, please contact us.