There are many KPI measurements that can be used to measure the success of a company. However, the top 4 KPIs to measure the financial performance of a company are as follows:
Gross Profit Margin:
This KPI measures how well a company is managing its direct or production costs by subtracting the direct production cost from revenue. It includes but is not limited to, the cost of materials and labor. As a result, if the Gross Profit Margin is too low, this measurement will lead you to reevaluate the individual direct costs or if there is no room for improvement in the direct cost, the next step is to look at the amount being charged for the product. help show areas where there is a need for improvement.
Gross Profit Margin = (Gross Profit/Revenue)*100
Net Profit Margin:
This KPI will measure the overall profit compared to revenue for the company. It takes the Gross Profit Margin and subtracts all the nonproduction costs that exist for the company to run. Without a positive KPI, your company will be losing money or if at a zero margin then the company is just breaking even with no profit and no loss.
Net Profit Margin = (Net Profit/Revenue)*100
Operating Profit Margin
The Net Profit Margin is reduced by any taxes or interest that may have been paid by the company. This KPI is also referred to as EBIT, which is Earnings before Interest and Taxes and shows how well the company is operating overall.
Operating Profit Margin = (Operating Profit/Revenue)*100
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This measurement represents the operating efficiency of the company by removing non-cash activities and focusing on the expenses that the company has complete control over.
EBITDA Margin = (EBITDA/Revenue) *100
Any of these measurements can be useful to a company if the KPIs are not mixed and are always compared to the original KPI. The preferred method of measurement for a company is based on the individual company’s requirements.