There are five key financial measurements a business owner should track each month. Whether you’re just starting out or looking to grow, tracking the right financial metrics each month helps you make smart decisions. Here are five simple but important measurements to check regularly, along with where to find the numbers and what they mean.
1. Net Profit Margin
What it is: The percentage of revenue that remains after all expenses.
Formula: Net Profit ÷ Revenue × 100
Find in: Income Statement (Profit & Loss Statement)
Example:
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Revenue: $20,000
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Total Expenses: $16,000
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Net Profit = $20,000 – $16,000 = $4,000
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Net Profit Margin = ($4,000 ÷ $20,000) × 100 = 20%
What it means: A 20% margin is great—you’re keeping 20 cents of every dollar earned. If it’s under 5%, you may need to cut costs or increase prices.
2. Current Ratio
What it is: Your ability to cover short-term debts with short-term assets.
Formula: Current Assets ÷ Current Liabilities
Find in: Balance Sheet
Example:
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Current Assets: $30,000
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Current Liabilities: $15,000
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Current Ratio = $30,000 ÷ $15,000 = 2:1
What it means: You have $2 in assets for every $1 of debt—a strong position. A ratio below 1:1 may mean trouble paying bills on time.
3. Gross Profit Margin
What it is: How much money is left after paying for the goods you sell.
Formula: (Revenue – COGS) ÷ Revenue × 100
Find in: Income Statement
Example:
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Revenue: $10,000
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Cost of Goods Sold: $4,000
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Gross Profit = $10,000 – $4,000 = $6,000
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Gross Profit Margin = ($6,000 ÷ $10,000) × 100 = 60%
What it means: 60% is strong in many industries. The higher this number, the more money you have left to cover other expenses and profit.
4. Accounts Receivable Turnover
What it is: How often you collect your receivables during the period.
Formula: Net Credit Sales ÷ Average Accounts Receivable
Find in: Income Statement (for sales), Balance Sheet (for receivables)
Example:
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Net Credit Sales: $24,000
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Average Accounts Receivable: $4,000
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A/R Turnover = $24,000 ÷ $4,000 = 6 times (a year)
What it means: You’re collecting payments about every two months. Aim for a higher number (8–12) if possible to improve cash flow.
5. Cash Flow
What it is: The net amount of cash moving in and out of your business.
Find in: Cash Flow Statement
Example:
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Cash Inflows (sales, loans, etc.): $15,000
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Cash Outflows (expenses, payments): $13,000
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Net Cash Flow = $15,000 – $13,000 = $2,000 positive
What it means: You brought in $2,000 more than you spent—great! Always aim for positive cash flow to keep your business running smoothly.
Quick Tip: Run these financial measurements monthly and compare them over time. Strong trends mean growth. Weak ones tell you where to adjust.
Need help producing accurate and timely financial reports? Contact us to discuss your bookkeeping or business advisory needs.
