Why is this important?
Profits are important for all businesses regardless of whether they are in the private or public sector. Simply put: the very nature of business is to produce goods or services that you can sell for a financial return or reward.
Taking away the costs of producing goods and providing services from the revenue or sales
you are generating will leave you with your profits. For any business, net profit (also referred to as net income) typically represents the most important measure of performance. Net profit shows us whether there is still any money left over after deducting all costs and expenses. The profits can then be reinvested to grow the company (called retained earnings) and used to pay a return to the company’s owners or shareholders (called dividends).
It is vital for managers and investors to know whether their company’s activities translate into bottom-line performance. For instance, a company can have great sales figures but if they don’t generate a surplus then the company will soon be in trouble.
With respect to Financial Perspective, below are few KPI's which a businessman should be mindful of:
- Net profit
- Net profit margin
- Gross profit margin
- Operating profit margin
- Revenue growth rate
- Total shareholder return (TSR)
- Economic value added (EVA)
- Return on investment (ROI)
- Return on capital employed (ROCE)
- Return on assets (ROA)
- Return on equity (ROE)
- Debt-to-equity (D/E) ratio
- Cash conversion cycle (CCC)
- Working capital ratio
- Operating expense ratio (OER)
- CAPEX to sales ratio
- Price/earnings ratio (P/E ratio)