Definitely, for the financial health of a company, it is necessary to understand the financial indicators. After all, it is through them that you will know how much profit and income you have made. And also, if you are on the right path or if you need to review the trajectory of your business.
Some medium and small companies do not perform this type of analysis with indicators. Which is highly risky. After all, with the indicators it is possible to obtain the necessary data to know if the actions taken are giving the expected results.
By relying on this data analysis, you will be able to have a greater sense of the true size of your business. Being able to evaluate even expansions and acquisitions, why not?
So, given the relevance of the subject, we decided to talk to you about what are the financial indicators
and why they are important to any business. Keep track!
What are financial indicators?
Financial indicators are nothing more than metrics and means to collect and generate information about the financial performance of your business. It is with them that you will know how healthy your business is.
If you have heard about KPIs, know that they are the same thing. Key Performance Indicators, in English. In other words, Key Performance Indicators.
These indicators are responsible for collecting relevant data about your company’s capital. Thus, it is much better to have reliable data at hand to analyze whether your business is performing as expected.
To cite some easy examples of indicators, we can mention the revenue itself, average ticket or ROI Each one with its parameter and point of view.
For you to understand better, below, we will talk more about each one of them and the importance of each one in business.
What are the main financial indicators?
Now, to understand in more detail about them, we have separated for you a list with the main financial indicators . Take the opportunity to know if you are following any of them in your company and which one needs to improve.
1) Gross margin
Also known as contribution margin, the gross margin indicates what percentage of gain the company incorporates into the each sale made. That is, it shows the gross profit margin, after the company pays taxes and other production costs.
Thus, with this indicator it is also possible to know how much is left over to pay expenses such as rent and salaries, for example.
Therefore, the gross margin is a fundamental indicator to evaluate the financial performance, because, with it, it is possible to know if the revenue is enough to pay all the costs of the company and still make a profit.
2 ) EBITDA
- This is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. Which in Portuguese means: earnings before interest, taxes, depreciation and amortization.
So, as the name suggests, the EBITDA indicator shows us how profitable the company is. Because it indicates all revenue without taking into account taxes and other discounts.
In other words, it summarizes the cash generation potential. Thus, it is useful to calculate how competitive and efficient the company is in its management. Therefore, it is one of the main financial indicators to monitor.
3) Net Margin
- Here we have what most interests the manager and owner of a business. Knowing the net profit margin of an enterprise is essential for a good performance.
And this is what the Net Margin indicator shows managers. That is, the percentage of net profit obtained in relation to the company’s total revenue.
This is where the entrepreneur sets the prices of his products , for example. That is, by doing this, you must ensure that the price charged will cover production costs, as well as being within the average practiced in the segment.
To illustrate and make it even easier:
Profit margin = revenue – costs – operating and financial expenses – taxes.
The result of this formula will give you a better idea of how much is actually left in in relation to the price charged. This helps a lot in financial planning and, of course, in the formation of more assertive prices.
4) Cost margin
The name of this indicator tells us everything. The cost margin takes into account the total costs of the entire operation, such as:
