The top 11 KPIs your Finance team should be tracking

Why Finance KPIs are important and why you should track them 

Finance KPIs are the numbers that explain whether your business is financially healthy and whether you are on track to hit your goals. International accounting bodies like the Association of Chartered Certified Accountants (ACCA) and the Chartered Institute of Management Accountants (CIMA) recognise them as essential tools for measuring profitability, liquidity, efficiency and growth. 

These days, your finance team should not wait for month-end reports anymore. Modern teams track performance in real time using dashboards and financial tools. Now, you can make faster decisions, sharper forecasts and smarter strategic plans. 

How finance KPIs can drive your business towards success 

KPIs are critical measures of the performance of your business and should be tracked to provide an objective indication of progress and help inform better decision-making. They can track efficiency, effectiveness, quality, time, governance, compliance, economics or resource utilisation.    

Many different KPIs can be tracked, depending on your industry, strategic goals, operational focus, projects or business functions.    

Key takeaways 

How do you choose the right finance KPIs? 

Your finance KPIs depend on your business goals. The Australian Government's Performance Framework recommends focusing on outcomes. That means you should prioritise metrics that clearly show whether you are achieving your goals.  

CPA Australia has a similar view. The organisation recommends KPIs that reflect strategic priorities so leaders can make better decisions and build sustainable performance over time. 

The following sections cover the most important KPIs your finance team should track, explain how to calculate them and why they are critical to your business's success.   

1. Operating cash flow  

   The Operating cash flow (OCF), also referred to as cash flow from operating activities, is the amount of cash generated by a company's regular business operations.   
   
   This is an important benchmark to determine the financial success of your company's core business activities and indicates whether your company can generate sufficient positive cash flow to maintain and grow its operations. It may need to borrow from external sources to finance any expansion if there is insufficient cash flow.   
   
   Financial analysts often look at the operating cash flow (OCF) because it is a critical figure used to assess the financial stability of a company's operations.  
   
   Operating cash flow vs free cash flow: what's the difference?
   
   OCF measures the cash your business earns from running its core operations. Free cash flow (FCF) shows what's left after spending on things like equipment, property or technology upgrades. 
   
   Both are valuable KPIs because they reveal a company's ability to fund growth, manage debt and maintain financial stability. 
   
   

2. Working capital

   Working capital, also known as net working capital, is the difference between a company’s current assets and current liabilities. It is a measure of a company’s liquidity and short-term financial health.
   
   Working Capital = Current Assets - Current Liabilities  
   
   Current assets include cash, accounts receivable, inventory, and other assets that are expected to be liquidated or turned into cash in less than one year.   
   
   Current liabilities include accounts payable, wages, taxes payable, and the current portion of long-term debt due within one year.   
   
   Working capital is an essential KPI because it measures your company’s operational efficiency and short-term financial health. A company with significant working capital will have the potential to invest in and grow the company. If a company’s current assets are less than its current liabilities, it may have difficulty paying creditors or investing in growth. 
   
   Without healthy working capital, even a profitable business can struggle to pay suppliers, cover payroll or keep the lights on. Get it right and your business runs smoothly. However, if you get it wrong, cash flow problems can spiral fast.
   
   When tracking working capital as a KPI, don't just compare it to a universal standard. Requirements differ significantly across sectors. So, benchmark against your own industry to get a true read on performance.
   
   Signs of poor working capital management
   
   
   • Cash flow shortages
   • Late supplier payments
   • Increasing short-term debt
     
     

3. Current ratio

   The current ratio is a liquidity ratio* that measures a company’s ability to pay short-term debts or those due within one year. This is an important KPI that investors and analysts use to determine if a company can maximise the current assets on its balance sheet to satisfy its existing debt and other payables.
   
   Current Ratio = Current Assets / Current Liabilities  
   
   The current ratio is calculated by dividing the total value of current assets by the total value of current liabilities.   
   
   Current assets are those that can be converted into cash within one year, while current liabilities are obligations expected to be paid within one year.   
   
   Examples of current assets include cash, inventory, and accounts receivable.   
   
   Meanwhile, common current liabilities include accounts payable, wages payable and the current portion of any scheduled interest or payments.  
   
   Liquidity ratios are an important class of financial metrics used to determine a debtor's ability to pay off current debts without raising external capital. 
   
   What is good current ratio?
   
   As a finance KPI, the current ratio helps assess a business's ability to meet short-term liabilities. While benchmarks vary by industry, many finance professionals consider 1.5 to 3.0 healthy. A ratio below 1.0 may indicate liquidity risk, while a ratio above 3.0 could suggest excess cash or underutilised assets.
   
   

   Metric	Formula	Purpose
   Operating cash flow	Cash from operations	Measures operational cash generation
   Free cash flow	OCF − Capital expenditure	Measures available cash after investments

   
   
   Exampe: 
   
   

   - OCF: $500,000 
   
   

   - Capital expenditure: $150,000 
   
   

   - FCF: $350,000 
   
   

   Warning signs: 
   
   

   - Consistently negative free cash flow 
   
   

   - Falling operating cash flow 
   
   

   - Rising capital expenditure without revenue growth 
   
   

4. Debt-to-Equity ratio

   The debt-to-equity ratio is calculated by analysing the business's total liabilities compared to your shareholders' equity (net worth). This critical KPI helps you focus on your financial accountability.  
   
   The KPI indicates how well your business is funding its growth and how well you are utilising your shareholders' investments. The number indicates how profitable the business is, and it tells you and your shareholders how much debt the business has accrued to become profitable.   
   
   A high debt-to-equity ratio reveals a practice of paying for growth by accumulating debt, which may not be sustainable in the future.   
   
   How should you interpret the debt-to-equity ratio?
   
   As a KPI, the debt-to-equity ratio shows how much your business relies on debt versus shareholders' equity to fund company operations.
   
   Why is debt-to-equity ratio important?
   
   Every business owner should know this KPI. This ratio represents how much borrowing and debt your business can handle. If your company has too much debt compared to equity, you will have to make more loan repayments. This can strain your cash flow. 
   
   

5. Burn rate

   Your company burn rate shows the speed at which cash is being spent.   
   
   Why should SMEs monitor burn rate?
   
   Whether assessed monthly, daily or yearly, monitoring burn rate regularly can be valuable as it reveals whether your business can maintain its spending rate over time. This is a key strategic performance priority. However, burn rate is an example of a finance KPI that needs cross-departmental collaboration to show the true picture. 
   
   

   Metric	Formula
   Burn rate	Monthly cash outflows − monthly cash inflows
   Cash runway	Cash reserves ÷ monthly burn rate

   
   
   For instance, Finance may see a printed list of outgoings from Marketing, but without a system that allows the two teams to collaborate both qualitatively and quantitatively, Finance may not know that spending is particularly high because of a strategic marketing campaign that month. 
   
   Collaboration between teams is necessary for an accurate, contextualised burn rate calculation.
   
   How to spot burn rate warning signs:
   

   • Shrinking cash runway 

   • Rising expenses 

   • Persistent negative cash flow 

6. Inventory turnover 

   
   Inventory turnover measures how efficiently your business sells and replenishes its stock over a set period. A high turnover rate is good news. It proves that your sales are strong and stock isn’t piling up. More importantly, your cash isn’t getting stuck in unsold inventory.   
   
   Keeping track of inventory turnover is effective from a performance point of view. Inventory turnover can help motivate your staff members to improve their performance. Once you have the number, share it with your logistics or warehouse team. This gives them a stock turnover goal to work towards.
   
   

   Metric	Formula
   Inventory turnover	Cost of goods sold ÷ Average inventory

    
   
   You should also watch out for these inventory red flags. They can quietly drain your business:
   

   • Excess stock sitting in your warehouse 

   • Dead or obsolete inventory that's no longer selling 

   • Inaccurate forecasting that leaves you over- or under-stocked 

   
    

7. Payment error rate 

   The payment error rate reflects the proportion of your company’s failed payments to those you owe. An essential KPI, payment error rates often occur due to problems with sign-offs, manual keying errors and other similar issues.   
   
   A high payment error rate can be a wake-up call for Finance and the senior leadership team. It indicates that payment systems may need to be updated. A finance software package can fix that by automating payments and syncing your teams so mistakes stop slipping through.
   
   

8. Net profit margin 

   The net profit margin is one of the most important KPIs to track since it is a significant indicator of a company’s financial health.   
   
   It measures how much net income is generated as a percentage of revenues received and helps investors determine if a company is generating enough profit from its sales. It also enables investors to determine whether operating and overhead costs are sufficiently maintained.   
   
   The net profit margin shows how much of each dollar of revenue generated by a company is profit. The larger the net profit margin, the more every dollar is kept in profit.   
   
   What are Days Sales Outstanding (DSO) and why do they matter?
   
   Accounts Receivable Days, commonly called Days Sales Outstanding (DSO), measures the average number of days it takes for your business to collect payment after issuing an invoice.
   
   Another significant KPI, DSO gives you a clear picture of how efficiently your business collects payments and manages working capital. A low DSO means your customers are paying promptly and your cash is flowing freely. Meanwhile, a high DSO is a red flag. It may mean your collections are struggling, your credit policy needs a rethink or your cash flow is under pressure.
   
   

9. Gross profit margin 

   Gross profit margin and net profit margin are two KPIs used to assess your company's financial stability and overall health.  
   
   The gross profit margin is the percentage of revenue that is left after accounting for the cost of goods sold.   
   
   This is an important KPI because it indicates whether a business can pay its operating expenses and has enough funds left over for growth.   
   
   Gross profit margin is calculated by taking total revenue minus the cost of goods sold and dividing the difference by total revenue. The gross margin result is multiplied by 100 to show the figure as a percentage.    
   
   Gross Profit Margin = (Total revenue – Cost of goods sold) ÷ Total revenue × 100
   
   Subtract your cost of goods sold from your total revenue, divide by total revenue, then multiply by 100 to get your percentage. 
   
   Why is gross profit among the most important finance KPIs?
   
   Gross profit margin gives you an early sign of how your business is performing commercially.  Unlike net profit margin, which looks at overall profitability, gross margin focuses on how well you generate revenue and control direct costs.
   
   The gross profit margin is usually a stable figure in a business unless there has been a major change affecting the enterprise, such as a change in costs or pricing.  
   
   

10. Current accounts receivable 

    Current accounts receivable measures the amount of money due to a business for goods or services delivered to its customers but not yet paid for. The Current accounts receivable KPI represents money owed to a company in the short term.   
    
    Accounts receivable is an important and fundamental KPI and measures a company's liquidity or the ability to cover short-term obligations without additional cash flows.   
    
    A high figure may mean that a business is struggling to manage overdue debtors and may lose money if the debtors cannot pay their bills in the long term.  
    
    Tracking current accounts receivable along with current accounts payable can help the finance team plan cash flow and plan additional team expansion. 
    
    

11. Current Accounts Payable 

    Current Accounts Payable are the opposite of current accounts receivable and represent the amount of money owed by a company to its suppliers or other third parties.   
    
    Current accounts payable represent short-term debt that must be paid off within a specific period of time. It may be the company policy to pay outstanding bills as late as possible to improve cash flow.   
    
    Current accounts payable is an important KPI to track alongside current accounts receivable. If current accounts payable increase over a certain amount of time, it may mean that the company is buying more goods or services on credit rather than paying cash.   
    
    If it decreases, the company may be paying off its debts faster than it is purchasing new items on credit.   
    Therefore, current accounts payable management is critical in managing a business's cash flow.   

Finance KPIs are important because they are measurable values that indicate how well a company is performing. They help the business to align with strategic goals, such as growth, revenue, profit, performance and sales.  

Implementing and measuring financial KPIs enables the finance team to track the performance of the business and to report on year-on-year performance or alter direction if necessary to meet the business targets.  

How do finance KPIs support better strategic planning? 

Nobody makes good business decisions through gut feel. Every industry-defining decision is backed by data. Metrics like Net Profit Margin, Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA), Cash Conversion Cycle (CCC) and Forecast Accuracy deliver the insights you need for long-term planning. 

How often should finance KPIs be reviewed? 

The ideal review frequency depends on the KPI and its impact on your business performance. High-priority metrics such as cash flow and working capital should be monitored more frequently than long-term strategic indicators.  

According to CPA Australia, overall business performance, especially for companies with cash flow difficulty, “should be monitored on a regular basis to ensure” emerging issues are identified early. 

Why should cash flow KPIs be reviewed weekly? 

Cash flow can change quickly. Weekly reviews of metrics such as DSO, Days Payable Outstanding (DPO) and Operating cash flow help finance teams identify risks early and maintain healthy liquidity. 

In addition, CPA Australia highlights the importance of regular cash flow monitoring for business resilience and financial stability. 

Additional KPIs to monitor  

In this article, we have covered the top 11 finance KPIs to track. However, there are many more that your finance team can monitor, depending on your industry, strategic goals, operational focus, projects or business functions.  

Here are a few suggestions of other business KPIs to track: