Many enterprises in Nigeria today have found success because they monitor key financial metrics for accountants that matter to their business. To set your enterprise up for success, you must know what to track.
In this article, we cover 7 key financial metrics for accountants like you to track in your enterprise and why you should be tracking them. Here you will also learn the formulas and find examples of how to calculate them.
Read the 10 Accounts Payable Excel Formulas All Accountants Should Know
1. Revenue Growth Rate
What It Is:
This metric measures the revenue increase percentage of your enterprise over a specific time which can be annually or quarterly.
Why is it important:
To assess your position in the market and therefore know your competitive advantage, you must be tracking your revenue growth. This is particularly important when you operate in a diverse economy that is populated by different enterprises in the oil, manufacturing, agriculture, transport industries, and so on.
2. Gross Profit Margin
What It Is:
This shows the revenue percentage as it exceeds the cost of goods sold.
Why is it important:
By knowing the gross profit margin, you can assess operational efficiency. A healthy gross profit margin shows that the cost management and pricing strategies that have been put in place are effective.
3. Operating Profit Margin
What It Is:
This measures the revenue percentage left after deducting your enterprise’s operating expenses but excludes interest and taxes.
Why is it important:
In the Nigerian economy where fluctuations in operating costs are the order of the day, calculating your operating profit margin is crucial to managing the effects of forex volatility and inflation.
4. Net Profit Margin
What It Is:
This calculates the revenue percentage left after deducting all expenses including interest and taxes.
Why is it important:
Calculating this helps you know if your enterprise’s overall management strategies are working. This is important for your business, especially in Nigeria where regulatory challenges are rampant.
5. Current Ratio
What It Is:
This measures your enterprise’s ability to cover short-term commitments with its short-term assets.
Why is it important:
Maintaining the health of your enterprise’s current ratio is critical for operational stability in a place like Nigeria where businesses face liquidity challenges.
6. Return on Equity (ROE)
What It Is:
This measures the return generated on your enterprise’s shareholder’s equity.
Importance:
A high return on equity (ROE) can be indicative of your enterprise’s profitability and effective management.
7. Debt to Equity Ratio
What It Is:
This compares your enterprise’s total liabilities to the equity of its shareholders.
Why is it important:
Knowing and understanding this ratio helps your enterprise balance its debt and equity financing, therefore mitigating any risks that may arise as a result.
Conclusion
When you embrace a disciplined mindset to your enterprise’s financial management as a finance professional, you set the stage for success in Nigeria’s competitive economy.
These metrics are not to stifle the creativity or spontaneity that every enterprise needs to grow but to better equip your finance team with the strategic insights they need.
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