Key metrics are vital to business. They indicate how well strategies are performing. They determine ROI and help businesses understand what’s working and what isn’t.

Leaders should track key metrics on an ongoing basis. But which metrics should they focus on? This article will reveal which ones may be relevant to your business.

Financial KPIs

Accounts Receivable

Accounts receivable refers to the amount of money owed to the company. It provides insight into future income. It also ensures businesses are up to date on their collections process.

Debtor days is a KPI closely related to accounts receivable. It indicates how long it typically takes a business to collect money owed. Companies should aim to keep this number low.

Accounts Payable

Accounts payable is the money a company owes. COOs should monitor accounts payable against accounts receivable to measure profitability and cash flow.

They must also consider creditor days, the number of days it takes for them to pay a debt. Like debtor days, they must strive to keep this number low.

Operating Cash Flow

Operating cash flow indicates the company’s profitability and growth potential. It is directly related to net income which is based on accounts receivable, accounts payable, depreciation, and inventory. You can calculate OCF using the following formula:

Earnings before interest and taxes (EBIT) + Depreciation – Taxes – Changes in working capital

Working Capital

Working capital can be arrived at using the following formula:

The sum of all the company’s assets/current liability

The company’s current assets include its cash, accounts receivable, inventory, short-term investments, and marketable securities (investments that can easily be converted into cash). Companies with assets that exceed their liabilities are primed for growth.

Gross and Net Profit

Gross profit shows how much money the company is bringing in. It is calculated with the following equation:

(Total Revenue- Cost of Goods Sold)/ Total Revenue

The net margin shows how much a company makes after expenses. It is figured as follows:

(Total Revenue – Cost of Goods Sold – operating expenses – other expenses – interest – taxes)/ Total Revenue.

Compared to gross revenue, net profit is a much stronger indicator of a company’s financial health.

Production KPIs

Throughput

Throughput tells you the amount of goods or services produced within a specific time frame. It helps COOs identify weak links in the production cycle. This metric can be increased with improved maintenance, more efficient processes, better equipment, and other productivity-boosting measures.

First Pass Yield (FPY)

FPY measures the quality of your company’s production. It can be arrived at using the following equation:

Number of Units That Didn’t Require Rework/ Total Number of Units Produced

If FPY is low, you may want to rethink your production process.

Planned Maintenance Percentage (PMP)

Planned maintenance reveals the effectiveness of a company’s maintenance strategy. Here is the equation used to figure PMP:

Number of Planned Maintenance Hours/ Total Number of Maintenance Hours

A high PMP is desirable because it shows your planned maintenance outweighs your emergency maintenance. Planned maintenance is preferable because it allows companies to budget for scheduled maintenance and maintain efficiency.

Personnel KPIs

Absenteeism

Absenteeism rates refer to unplanned and unapproved time off. It does not include planned vacation time. A low absenteeism rate shows your company provides a safe and healthy environment for its employees.

High Performer Turnover Rate

Companies often suffer from high turnover. Recruiting and training employees requires time and money. When employees suddenly leave the company, it reduces productivity and leads to additional spending.

Some employees are not the right fit, but companies especially suffer when they lose top performers. That’s why it’s important to monitor high-performer turnover rates. It is determined as follows:

Highest Performers Who Left the Company/ Highest Performers Remaining

There is no industry standard for turnover rates, but companies should aim to outperform the competition.

Diversity Ratios

Businesses should aim to employ a diverse workforce. Companies typically benefit from input that spans various cultures and genders.

Diversity ratios can be determined as follows:

• Number of Female Workers/ Number of Male Workers
• Number of Minority Employees/ Total Number of Employees

Companies should aim for a 1:1 ratio across the board.

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