Key Performance Indicators (KPIs) for Business - Flashcard set - Business Strategy

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Gross Profit Margin

Gross Profit Margin is the percentage of revenue that exceeds the cost of goods sold (COGS). It is measured by dividing the gross profit by the revenue and multiplying by 100 to get a percentage:

\text{Gross Profit Margin} = \left( \frac{\text{Gross Profit}}{\text{Revenue}} \right) \times 100\%

Net Profit Margin

Net Profit Margin is a measure of profitability, calculated by dividing net profit by revenue and multiplying by 100:

\text{Net Profit Margin} = \left( \frac{\text{Net Profit}}{\text{Revenue}} \right) \times 100\%

Return on Investment (ROI)

ROI is a measure of the profitability of an investment. It is calculated by dividing the net gain from the investment by the cost of the investment and multiplying by 100:

\text{ROI} = \left( \frac{\text{Net Gain from Investment}}{\text{Cost of Investment}} \right) \times 100\%

Customer Acquisition Cost (CAC)

CAC is the cost associated with acquiring a new customer. It is calculated by dividing all the costs spent on acquiring more customers by the number of customers acquired:

\text{CAC} = \frac{\text{Total Costs of Acquisition}}{\text{Number of Customers Acquired}}

Employee Turnover Rate

Employee Turnover Rate is the rate at which employees leave a company. It is calculated by dividing the number of employees who left by the average number of employees and multiplying by 100:

\text{Employee Turnover Rate} = \left( \frac{\text{Number of Employees Left}}{\text{Average Number of Employees}} \right) \times 100\%

Customer Retention Rate

Customer Retention Rate measures the percentage of existing customers that a company has retained over a specific period. It is calculated with the following formula:

\text{Customer Retention Rate} = \left( \frac{\text{Number of Customers at End of Period} - \text{Number of New Customers during Period}}{\text{Number of Customers at Start of Period}} \right) \times 100\%

Inventory Turnover

Inventory Turnover is the rate at which a company sells and replaces its stock of goods. It is measured by dividing the cost of goods sold by the average inventory:

\text{Inventory Turnover} = \frac{\text{COGS}}{\text{Average Inventory}}

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

EBITDA is an indicator of a company's financial performance, calculated as revenue minus expenses, excluding interest, taxes, depreciation, and amortization:

\text{EBITDA} = \text{Revenue} - \text{Expenses (excluding interest, taxes, depreciation, and amortization)}

Days Sales Outstanding (DSO)

DSO indicates the average number of days that it takes for a company to collect payment after a sale has been made. It is calculated by dividing the total accounts receivable by the total net credit sales and multiplying by the number of days in the period:

\text{DSO} = \left( \frac{\text{Accounts Receivable}}{\text{Net Credit Sales}} \right) \times \text{Number of Days}

Days Inventory Outstanding (DIO)

DIO measures the average number of days that a company holds its inventory before selling it. It is calculated by dividing the average inventory by the cost of goods sold and multiplying by the number of days in the period:

\text{DIO} = \left( \frac{\text{Average Inventory}}{\text{COGS}} \right) \times \text{Number of Days}

Days Payable Outstanding (DPO)

DPO represents the average number of days that a company takes to pay its bills and invoices. It is calculated by dividing the average accounts payable by the cost of goods sold, and then multiplying by the number of days in the period:

\text{DPO} = \left( \frac{\text{Average Accounts Payable}}{\text{COGS}} \right) \times \text{Number of Days}

Debt-to-Equity Ratio (D/E)

D/E Ratio is a measure of a company's financial leverage, calculated by dividing a company's total liabilities by its shareholder equity:

\text{Debt-to-Equity Ratio} = \frac{\text{Total Liabilities}}{\text{Shareholder Equity}}

Current Ratio

Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its current assets. It is calculated by dividing current assets by current liabilities:

\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}

Quick Ratio (Acid Test)

Quick Ratio measures a company's ability to meet short-term obligations with its most liquid assets. The ratio is calculated by subtracting inventories from current assets and then dividing by current liabilities:

\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\text{Current Liabilities}}

Return on Equity (ROE)

ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. It is calculated by dividing net income by shareholder's equity:

\text{Return on Equity} = \frac{\text{Net Income}}{\text{Shareholder's Equity}}

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