Financial Metrics and Key Performance Indicators for Managers

Subject: Management
Pages: 2
Words: 632
Reading time:
3 min
Study level: College

Judging a corporation’s performance can be challenging for managers. In the contemporary business world, there are many different aspects of a corporation that are crucial for success, but performance metrics are found to be a useful supplement (Smith & van der Heijden, 2017). For example, a company cannot solely base its performance on financial feat alone because there are other equally important aspects. This can be public relations, corporate social responsibility, or work environment. It can also be challenging to decide which of the metrics and aspects of the business one should focus on. Plus, when choosing performance metrics, the triple bottom line should be taken into consideration (Dada, 2017). There are no definite answers to which metrics a business should utilize. In this paper, the most essential metrics, or Key Performance Indicators (KPIs) for operations managers will be explored.

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The most essential financial metrics for operations managers are earnings before interest and taxes (EBIT). As the name applies, the metrics show the company earnings before interest and taxation. Interest is considered a financial activity and is, therefore, excluded from this metric. Taxes are considered an operating activity but are also not included in the financial metric. This is because the EBIT shows the profitability of the operations and gives the operating manager a clear image of the company’s earning capabilities. With regards to estimating the company’s stock returns, EBIT has not been an accurate tool for measurement after the 2000s (Nissim, 2017).

Another important KPI for managers connected to sales is revenue growth which is defined as the change in revenue between two periods. This metric is important to judge how the company is growing. If there is little to no growth in revenue, the company is likely in the end portion of its life cycle. It is also a useful tool to analyze how the revenue is developing in comparison with the total market. If the increase in revenue growth is larger than the market growth, it means that the company has a more rapid growth rate than the market.

A metric that is crucial with regards to marketing is the customer acquisition cost (CAC). This metric is calculated by dividing the total cost of a marketing campaign by the total new customers obtained by the campaign. This is a highly useful metric to judge if the company is overspending on its marketing campaigns. It is also useful to see how effective the campaign is by analyzing the costs of acquiring new customers. When utilizing this metric, the results are only as good as the data they are based on (Hazen et al., 2014). If the new customers, on average, spend less than the obtainment cost, it is obvious that the campaign is inefficient.

Another vital metric that covers customer success is the Net Promoter Score (NPS). NPS is a tool used to judge customers’ loyalty to your business. The metric is made by consumers responding to questioners about how they perceived the business experience and ranks it from 1-10. This is a core metric for all businesses but is particularly important for businesses that use customer experience as a differentiating factor (Owen, 2019). For managers, this metric gives insight into how customers perceive the corporation today and how the perception develops over time.

In this paper, the most essential metrics for financial, sales, marketing, and customer performance have been listed. According to Brandenburg (2018), operation excellence is an important factor in a firm’s business success. It is important to note that there never is a right or wrong answer when it comes to KPIs since it often depends on the business model and the goals of the corporations. Additionally, it is important to have the technical tools to streamline the process and make the data comprehensible for operations managers.

References

Brandenburg, M. (2018). Design and implementation of a measurement and management system for operational and supply chain performance. IEEE Engineering Management Review, 46(3), 117-123. Web.

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Dada, O. (2017). Triple bottom line: Companies should not be concerned about profit alone. LinkedIn. Web.

Hazen, B. T., Boone, C. A., Ezell, J. D., & Jones-Farmer, L. A. (2014). Data quality for data science, predictive analytics, and big data in supply chain management: An introduction to the problem and suggestions for research and applications. International Journal of Production Economics, 154, 72-80. Web.

Nissim, D. (2017). EBITDA, EBITA, or EBIT? Journal of Applied Accounting Research, 18(1), 63-86. Web.

Owen R. (2019). Net promoter score and its successful application. In: Kompella K. (Ed.) Marketing Wisdom. Management for Professionals. Springer, Singapore. Web.

Smith, S., & van der Heijden, H. (2017). Analysts’ evaluation of KPI usefulness, standardization and assurance. Journal of Applied Accounting Research, 18(1), 63-86. Web.