Below we have listed financial indicator options to monitor in your business. Check it out!

### 1. Cash Flow

The cash flow result is one of the essential financial indicators for assessing whether a company’s operations are sustainable. This is because this tool monitors everything that comes in and goes out of the cash register.

Ideally, income should be greater than outgoing income for the balance to be positive and still make a profit from operations. However, spending more than income can be a red flag for the company.

To calculate monthly cash flow, it is essential that all transactions are recorded at the time they are made. What makes monitoring and generating the report with the balance sheet easier is the automation of the process.

Implementing a cash control program makes the financial team’s work routine easier.

#### Operating cash flow (OCF)

Operating cash flow (OCF) is an offshoot of the main monitoring. In this case, this metric shows the records of inflows and outflows related to the company’s operational activities.

Money from the sale of products or goods produced is considered ‘inflows’ and amounts used to pay expenses, such as salaries, suppliers , and other operating expenses, are considered ‘outflows’.

Formula:

- FCO = total cash balance from the previous month + sales payment – general expenses

A positive result means that the company is financially healthy, while a negative result indicates possible problems in cash generation.

### 2. Current liquidity (CL)

Another financial indicator that should be on the radar of financial teams is Current Liquidity (CL) . This metric allows companies to assess their ability to meet their debt payments and financial responsibilities in the short term.

The formula for calculating Current Liquidity is:

- Current liquidity (CL) = current assets ÷ current liabilities

It indicates the cash generation capacity of the company—keeping money coming in to fund its operations.

As a general rule, an LC value greater than 1 means that the company has sufficient liquidity to undertake commitments, while an LC value less than 1 shows the financial conditions are compromised.

However, the positive result points to the current scenario. Therefore, it is important to consider the situation and the operational cycle as a whole to make an accurate interpretation.

### 3. EBITDA margin

Its calculation is made by taking the difference between the total of net revenues and operating costs and expenses.

- EBITDA = total sales revenue – cost of items sold – operating expenses

Even though the indicator points to efficiency in generating operating profit, one cannot turn a blind eye to the volume of expenses, as this factor influences the net margin.

### 4. Net margin

Net margin is a financial indicator that analyzes both the costs of operation and other financial obligations, including taxes, depreciation, and amortization. The following is the formula used in computing the net margin:

- Net margin = EBITDA – financial expenses – taxes – depreciation – amortization

This resulting indicator is crucial to confirm whether the company got a profit or not. As we highlighted above, a business can have a profitable operation, but not make a final profit.

The need for working capital that may derive high interests in loans for the company, depreciation of equipments, and high tax burdens are challenges, which interfere with the overall resulting indicator.

Therefore, it helps to analyze a firm’s financial indicators and establish factors that have a negative contribution to its performance.

### 5. Gross margin

Gross margin is the metric that completes the trio of basic financial indicators of a company. The calculation measures the efficiency in generating full profit (without deductions) from sales, in addition to assisting in the analysis of profitability with the portfolio of products or services.

The formula is as follows:

- Gross Margin (%) = Gross Profit (revenue – costs of goods or products) ÷ Revenue x 100

Ideally, this margin should be increasingly larger, indicating sales efficiency.

### 6. Need for working capital

Working Capital Requirement (NCG) is the minimum amount of cash required to cover the operation in the short term.

- Working Capital Requirement (WCR) = average collection terms – average payment terms

If the time for receipt is longer than the payment time, the NCG is positive and the company can have cash in hand first and then spend it. When the opposite scenario is true, that is, payments arrive before receipt, the NCG is negative.

Given this result, it is necessary to reevaluate payment terms to have a more advantageous schedule.

### 7. Ability to generate profit

The ability to generate profit is another of a company’s financial indicators, obtained by dividing operating profit and net revenue.

- Profit-generating capacity = operating profit ÷ net revenue

The result shows whether the company is financially sustainable. To further analyze the results, evaluate the terms given to customers to pay for orders and the need to obtain capital through loans, as this affects net profit.

Based on this data, the necessary adjustments to reconcile accounts payable and receivable can be made so that the company maintains its own capital.

### 8. Financial breakeven point

The break-even point is the ideal revenue that the company needs to achieve to cover its fixed and variable expenses. In other words, the value of revenue and expenses are equal.

This is one of the main financial indicators because it serves as a parameter for setting the annual revenue target, for example, in addition to being a metric that can be adopted by any company.

The break-even point is the average, but the ideal is to exceed this result to maintain operations and still generate profit. The formula for calculation is:

- Breakeven point = fixed costs and expenses ÷ contribution margin (revenue – variable costs and expenses)

### 9. Return on Investment (ROI)

The list of financial indicators for a business also includes return on investment, or ROI. After all, it’s helpful to know whether or not the money spent on enhancing a certain part of the business produced a profit.

The formula for calculation is simple:

- ROI (%) = (net profit ÷ investment) x 100

With the result, the manager can provide an overview of the viability of continuing to invest, and what is still possible to do to improve results.

### 10. Net worth

One economic measure that conveys the company’s current true value, or how much it is worth, is net equity. Its computation is straightforward: the whole obligations must be deducted from the total assets. The following is the formula:

- Net worth = total liabilities – total assets

It is worth noting that for companies that have intangible assets as equity, this calculation is not as accurate. Another possibility to have a parameter is to calculate the discounted cash flow.

### 11. Debt ratio

In turn, the Debt Rate is a financial indicator that serves to assess the risk to which the company is exposed, both in relation to outstanding debts with suppliers and with financial institutions.

In this case, the main concern is the interest charged on the overdue amount. Contracts with suppliers may provide for additional charges, not to mention that not honoring commitments harms relationships with good companies in the market.

The bank’s interest is even higher and can snowball from a single due. The level of a debt calculation is made according to this formula:

- Debt ratio (%) = (total liabilities ÷ equity) x 100

The higher the value, the faster a need arises for measures to be taken to resolve the situation.