Business Financial Metrics
Ma Spratt
Strayer University
Business Financial Metrics
The word metrics refers to measurement. Business people speak of software performance metrics, customer satisfaction metrics and financial metrics, for instance. The metrics in each case describe how the subject is measured and there can be many different ways to measure each subject. Most people in business—even those who are not in finance or accounting—have heard of financial metrics such as net cash flow, return on investment, or earnings per share. (Schmidt
, 2004- 2013)
Each financial metric says something unique about a body of financial data. In that way, financial metrics are like descriptive statistics: the statistical average (arithmetic mean), for example, represents the "typical" value in a data set. The typical employee salary for a certain job level, for instance, can be compared with statistical averages from other bodies of data. (Schmidt, 2004-2013)
There are many different types of ratios: you have income, profitability, liquidity, working capital, bankruptcy, long-term analysis, coverage, and leverage. Additionally, when performing ratio analysis of financial statements, it is helpful to adjust the figures to common-size numbers. To do this, change each line item on a statement to a percentage of the total. For example, on a balance sheet, each figure is shown as a percentage of total assets, and on an income statement, each item is expressed as a percentage of sales. (Vanderwater, 2010)
This technique is quite useful when you are comparing your business to other businesses or to averages from an entire industry, because differences in size are neutralized by reducing all figures to common-size ratios. Industry statistics are frequently published in common size form. (Vanderwater, 2010)
Management is the discipline of assembling people and resources to reach specific goals. Management of business performance is designed to meet defined business targets within a particular time frame. An evaluation of performance management looks at the performance criteria and measures them against the targets. These metrics fall into broad categories that express how well the business is meeting long-term goals. They include metrics from the marketplace as well as internal factors that affect the success of the business. (Chron, 2013)
It is a truism that we live in an era of accelerated change, and no organization can survive without increasing its own pace of decision-making. Hence an increased emphasis on realistic planning is being recognized, and in fact the US Congress has mandated such an emphasis in legislation such as the Government Performance and Results Act (GPRA) of 1993. It requires governmental agencies to develop strategic plans and performance plans that evaluate the success of the strategic plan. The intent is to make governmental agencies more accountable for results to their ultimate customer -- the taxpayers. (Averson, 1999)
The key metric for government (or nonprofit) performance, therefore, is not financial in nature, but rather mission effectiveness. But mission effectiveness is not a definite and static thing. Usually, an agency has a rather broad general mission, which incorporates many specific sub-missions or departmental missions within it. At any given time, some departmental missions may be more important than others for the needs of the country. The selection of the departmental mission priorities is an ongoing strategic planning responsibility. (Averson, 1999)
Let’s look at inventory turnover, this is the total of times per year the inventory changes. With the accounts receivable turnover, this is a general number for the year payable to the fact that inventory and sales are accepted to fluctuate along the year. Considering inventory is at value for the organization, it is critical to use the cost of goods sold. In adding, it is critical to use the average amount in the inventory account for