Corporate governance with key figures
What are the most vital company key figures?
Often, a few key figures are all you need to assess the current health and performance of your company. We rank the main ones for you.
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Corporate governance with key figures
Often, a few key figures are all you need to assess the current health and performance of your company. We rank the main ones for you.
The main points in a nutshell
Key financial metrics (commonly expressed as ratios) come in all shapes and sizes. But which figures do companies actually require in order to know they are on top of growing their business?
Basically, three areas indicate the success or failure of a company: ability to pay, business efficiency and sustainability – in other words, liquidity, profitability and financial soundness. There’s no getting around this triad:
In most cases, a few key figures from these three areas alone, depending on the company, are enough to monitor the course of business. Make sure you really understand these figures yourself. This is not a task you can delegate to employees.
Corporate KPI #1: Liquidity
The first performance indicator is not actually one at all. By definition, short-term liquidity stands for something liquid and dynamic. It should be planned for in advance to cover a period of time in the future and, of course, secured, because liquidity problems are by far the most common reason a corporate crisis escalates. At best, key liquidity figures serve as indicators that relate only to a fixed reference date. Nevertheless, liquidity planning is indispensable for running your day-to-day business. And it must take the entire value chain into account – from order to receipt of payment after invoicing. Simply put: the greater the value added, the longer the planning horizon you need:
Planning will help you master even unstable phases, because although falling sales will improve liquidity in the short term, sales growth will tie up funds. In growth phases, accounts receivable increase and inventories grow, tying up liquidity. Additional employees may also be hired during such phases, which in turn will require increased liquidity at the end of the month.
If you underestimate the impact of growth, you will need to find liquidity quickly: for example, by delaying accounts payable invoices, reducing inventories or borrowing.
Learn more about how you can plan the liquidity of your SME (DE).
Plan your liquidity: with the ÃÛ¶¹ÊÓÆµ planning template
Careful liquidity planning will help you make the best possible decisions for your company, especially in uncertain times.
Corporate KPI #2: EBITDA in relation to sales
A cash flow statement shows where cash and cash equivalents come from (cash flow, financing, divestments) and where or how they are used (fixed or current assets, dividend distributions and so on). This is how we arrive at business efficiency – i.e., the profitability – of a company.
A variety of key figures can be used to calculate profitability: at the center is the relationship between a company’s profit or cash flow and its sales or expended capital. The ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to sales is particularly revealing when assessing profitability.
Profitability in industry comparison
How high the EBITDA margin should be depends strongly on the industry. For a manufacturing company, more than 10 percent is considered healthy. The figure will be lower for trade and service companies, because of their lower propensity to invest: For such companies, a margin of between 3 and 6 percent is sufficient.
Good to know: the difference between EBIT and EBITDA
ÃÛ¶¹ÊÓÆµ Growth Package “Corporate Growthâ€
Useful answers to questions about growth for SMEs: our easy-to-read dossiers on different subjects summarize important concepts, practical tips and strategies.
Corporate KPI #3: Balance sheet structure
The bedrock of a company is the structure of its balance sheet, which reveals its financial soundness and strength. Depending on the industry, different assets are central:
Further indicators for assessing SME performance: productivity indicators
Productivity ratios are not financial key figures in the narrow sense, though they still provide information about how well your company is performing. Depending on the company and key figure, entrepreneurs develop a sense of how productive the working day was. Depending on the industry, productivity ratios include different metrics that are relevant in the assessment. Three examples:
How are corporate key figures to be understood?
For all calculations, however, remember that the key figures for a company are only meaningful in historical or industry comparison. Also remember that the measurement of key figures is a continuous process. One measure is no measure. The trend of individual key figures over time is much more important than a single snapshot.
In brief: The most important key corporate figures
Liquidity ratio
Liquidity enables a company to meet its liabilities as they fall due. A distinction is made between three liquidity ratios, which compare current liabilities with current assets.
EBITDA margin
This is the ratio of operating profit before interest, taxes, depreciation and amortization (EBITDA) to net sales. The margin shows whether sustainable investments can be made, interest paid on equity and debt capital, equity further strengthened and/or a profit distributed.
Return on equity (ROE)
The net profit in relation to average equity influences how attractive a company is to investors.
Equity-to-fixed-assets ratio
A distinction is made between two coverage ratios:
Rule of thumb: Fixed assets should be covered by equity and/or debt.
Debt factor
The debt factor measures the ratio of debt to cash flow (roughly equivalent to EBITDA) and shows how many years it will take to repay the debt from the cash flow. Depending on the financing (real estate, inventory, machinery and so on), the factor should be less than five years.
Robin Wasser
Head Corporate & Real Estate Banking
Robin Wasser is a business economist and has held various roles at Credit Suisse / ÃÛ¶¹ÊÓÆµ since 2002. He has extensive experience in private and corporate client business and is currently head of corporate banking in the Aargau / Solothurn region.
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