Small Businesses

Top 10 financial metrics for business success in 2023

  • 5 min Read
  • August 29, 2023

Author

Escalon

Table of Contents

You can’t just rely on your gut instinct when running a small business. You need to gauge the performance of the various business activities to gain insight into the company’s financial health as well as the effectiveness of its current strategies, identify areas for growth and spot problems, and make proactive decisions. This is where the role of financial metrics comes into play.

Schedule a call today

What are financial metrics?


Financial metrics take into account every aspect of financial performance that can be measured including sales turnover, profits, expenses, assets, liabilities and capital. In order to remain profitable and viable in the long run, small business owners should be clear about the basic concepts of financial accounting.

Businesses from diverse sectors use these financial metrics to monitor their operations, improve outcomes, enhance operational efficiency, support planning and strategy development, and prevent financial waste.

Which are the fundamental financial metrics every business should track?


As per the Corporate Finance Institute (CFI), below are the 10 key financial metrics you should monitor to ensure your small business is on track to achieving its goals.

1. Sales revenue


As revenue is the lifeline of any business, tracking it is crucial for any firm. Included in many performance indicators for businesses, this metric can determine whether your business is on an upward growth trajectory, stagnant or on the decline.

Sales revenue = No. of units sold x Average price

2. Gross profit margin (GPM)


Gross profit margin evaluates how effectively manufacturing costs are managed in proportion to sales. The higher the margin, the better the business’s performance. While calculating GPM, for accurate data interpretation, a comparison to industry standards is recommended.

 Gross profit margin = (Gross profit / sales) x 100 

3. Net profit margin


Another metric for tracking profitability is net profit margin, which shows how much net profit is generated for every dollar of revenue. If the margin is low, either selling prices need to be raised or costs need to be reduced.

Net profit margin = (Net profit / Sales) x 100

4. Net cash flow


The difference between cash inflows and withdrawals is measured as net cash flow. Every business has different cash flow requirements depending on its type or sector.

 Net cash flow = Revenue + Increase in liquid assets – Expenditures + Increase in liabilities

Talk to us about how Escalon’s essential business services can provide your firm with the right financial metrics to drive improvements.

5. Working capital


Working capital is a testament to a company’s capacity to fulfill its immediate obligations. Basically, it’s the capacity to use short-term assets to fund payments to meet obligations that are due soon.

Working capital = Current assets – Current liabilities

6. Debt-to-equity ratio


This ratio gauges how much debt and how much equity make up a business’s capital structure. When the ratio is more than one, it indicates that the majority of the capital is derived from debt. The ratio also determines the inherent risks such as the inability to pay off all debt in the event of a business slump thus providing insights into the business’ solvency.

 Debt-to-equity ratio = Total liabilities / Shareholders’ equity

7. Current ratio


The ability of a business to pay short-term obligations as they come due is measured by the current ratio. Desirable ratios depend on industry standards, however, a ratio of more than one serves as a benchmark for the entire economy.

Current ratio = Current assets / Current liabilities

8. Inventory turnover


It measures how well an investment in inventory produces sales over a given time frame. It serves as an indicator of how quickly a company can sell stocks. The higher the ratio, the greater the efficiency level.

Inventory turnover = Cost of goods sold / Average inventory

9. Days sales outstanding (DSO)


Day sales outstanding estimates the typical number of days it takes a business to collect money from credit sales and shows the efficiency of credit sales collection. The company is considered to be more efficient at collecting money when the number of days is less. It may be calculated every month, every three months, or every year.

Days sales outstanding = (Average account receivables / Total net credit sales) x 365

10. Days payables outstanding (DPO)


The average number of days it takes a business to pay its suppliers is determined by days payables outstanding. The higher the number of days, the longer it takes for a company to pay its suppliers, and in some instances, the higher the business’s negotiating power over its suppliers. A higher ratio, however, can be taken as a lack of ability to pay.

Days payables outstanding = (Average account payables / Cost of goods sold) x 365

Bottom line


While the above-mentioned financial metrics help you monitor and analyze key aspects of your small business, to accurately evaluate its financial health and long-term sustainability, make sure to consider several metrics in tandem.

Want more? Escalon has helped over 5,000 small businesses across a range of industries to optimize routine business functions, like taxes, accounting, insurance, payroll and HR. Talk to an expert today.

Schedule a call today

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

Accounting & Finance

M&A Readiness: How to Prepare Your Financials for a Successful Acquisition or Sale 

Mergers and acquisitions (M&A) can dramatically alter a company’s trajectory—unlocking new markets, technologies, or customer bases. Yet, many deals stumble...

Read More
Accounting & Finance

Optimizing Working Capital: Strategies to Maximize Liquidity Without Raising Funds 

Working capital: The difference between your current assets and your current liabilities. It’s a key barometer of financial health.  While...

Read More
Accounting & Finance

Outsourcing vs. In-House: A Strategic Guide for Growing Companies

Expanding your team and capabilities is critical to sustaining growth—but the question often arises: Should you build an in-house department...

Read More
Accounting & Finance

The CFO’s Role in Driving Operational Efficiency in a Mid-Sized Company 

A Chief Financial Officer (CFO) isn’t just a numbers person anymore. Modern CFOs play a pivotal role in shaping strategy,...

Read More
Technology & Security

What Every $10M+ Business Should Know About Data Privacy Laws 

Once your annual revenue surpasses $10 million, you attract more attention from regulators, partners, and customers, especially regarding data privacy....

Read More
People Management & HR

The Cost of a Bad Hire: How to Improve Your Recruiting Process

Hiring is one of the most pivotal processes in any organization, particularly for a medium-sized business looking to scale. Yet...

Read More
People Management & HR

Key Insights from the 2025 CBIZ Not-for-Profit Pulse Survey 

At Escalon, we are committed to keeping our clients informed about the latest trends, challenges, and opportunities across the industries...

Read More
People Management & HR

Scaling Culture: How to Keep Employees Engaged as Your Business Grows

Growth in headcount brings exciting opportunities for a business, but it also poses a key challenge: How do you maintain...

Read More
Accounting & Finance

Managing Multi-State Compliance as Your Workforce Becomes More Distributed

Rapid expansion and remote work trends have empowered medium-sized businesses to hire talent nationwide. Yet with multi-state operations come multi-layered...

Read More