KPI Cheatsheet

Gross Profit Margin

Gross Profit Margin measures how efficiently a company produces or delivers its goods and services after accounting for direct costs such as materials and labor. It is calculated by subtracting Cost of Goods Sold (COGS) from total revenue and dividing the result by revenue. A higher gross margin indicates stronger pricing power, efficient production processes, or favorable supplier terms. This KPI is critical for comparing profitability across products, departments, or time periods. Declining gross margins may signal rising input costs, pricing pressure, or operational inefficiencies that require management attention.

Net Profit Margin

Net Profit Margin shows the percentage of revenue that remains as profit after all expenses, including operating costs, interest, taxes, and depreciation, are deducted. It reflects the company’s overall financial efficiency and cost control. A strong net margin indicates effective expense management and sustainable profitability. This KPI is widely used by investors, lenders, and executives to assess long-term financial health. A declining net margin may indicate rising overhead, inefficient operations, or poor pricing strategies, even if revenue growth appears strong.

Return on Equity (ROE)

Return on Equity measures how effectively a company uses shareholders’ invested capital to generate profits. It is calculated by dividing net income by average shareholders’ equity. A high ROE indicates strong managerial performance and efficient capital utilization, making it attractive to investors. However, ROE should be analyzed alongside leverage levels, as excessive debt can artificially inflate the ratio. Consistently strong ROE signals sustainable growth, disciplined financial management, and competitive advantage within the industry.

Working Capital Ratio

The Working Capital Ratio evaluates a company’s ability to meet short-term obligations using its current assets. It is calculated by dividing current assets by current liabilities. A ratio above 1 indicates sufficient liquidity, while a very high ratio may signal inefficient asset usage. This KPI is critical for cash-flow management, supplier negotiations, and operational stability. Businesses with weak working capital ratios may face liquidity stress, delayed payments, or difficulty funding daily operations, especially during economic downturns.

Operating Cash Flow

Operating Cash Flow measures the cash generated from core business operations, excluding financing and investing activities. Unlike net income, it focuses on actual cash movement rather than accounting profits. Strong operating cash flow indicates that a company can sustain operations, pay suppliers, and invest in growth without relying heavily on external financing. This KPI is crucial for assessing financial sustainability and liquidity. Persistent negative operating cash flow is a warning sign, even if reported profits appear positive.

Free Cash Flow

Free Cash Flow represents the cash remaining after a company covers operating expenses and capital expenditures. It reflects the funds available for dividends, debt repayment, acquisitions, or reinvestment. This KPI is a key indicator of financial flexibility and long-term value creation. Companies with strong free cash flow can grow organically without excessive borrowing. Investors closely monitor this metric because it reveals the true cash-generating ability of the business beyond accounting profits.

Cash Burn Rate

Cash Burn Rate measures how quickly a company spends its available cash, typically calculated on a monthly basis. It is especially important for startups, SaaS companies, and growth-stage businesses. A high burn rate without corresponding revenue growth can threaten business continuity. This KPI helps management plan fundraising, cost reductions, and runway extension strategies. Monitoring burn rate ensures that spending aligns with strategic objectives and prevents unexpected liquidity crises.

Cash Runway

Cash Runway estimates how long a business can continue operating before running out of cash, based on its current burn rate. It is calculated by dividing available cash by monthly cash burn. This KPI is essential for financial planning, budgeting, and investor discussions. A longer runway provides management with flexibility to pivot strategies, invest in growth, or wait for favorable market conditions. Short runways require immediate action, such as cost optimization or capital infusion.

Days Sales Outstanding (DSO)

Days Sales Outstanding measures the average number of days it takes to collect payment after a sale is made. It is a key indicator of accounts receivable efficiency and credit management. Lower DSO values indicate faster cash collection and stronger liquidity. High DSO may signal weak collection processes, lenient credit terms, or customer payment issues. This KPI directly impacts cash flow and working capital, making it critical for finance and operations teams.

Days Inventory Outstanding (DIO)

Days Inventory Outstanding measures how long inventory is held before being sold. It reflects inventory management efficiency and demand forecasting accuracy. Lower DIO indicates faster inventory turnover and reduced holding costs. Excessively high DIO may suggest overstocking, obsolete inventory, or weak sales performance. This KPI is especially important in manufacturing, retail, and distribution businesses, where inventory ties up significant capital and directly affects profitability.

Cash Conversion Cycle (CCC)

The Cash Conversion Cycle measures the time required to convert investments in inventory and receivables into cash, accounting for payables. It combines DSO, DIO, and DPO into a single metric. A shorter cycle indicates efficient working capital management and stronger liquidity. Companies with negative CCC effectively finance operations using supplier credit. This KPI is vital for operational efficiency, cash-flow forecasting, and financial resilience.

Inventory Turnover

Inventory Turnover measures how often inventory is sold and replaced during a period. It reflects demand strength and inventory control effectiveness. High turnover indicates efficient inventory management and strong sales, while low turnover may signal overstocking or declining demand. This KPI helps businesses optimize purchasing, storage, and production decisions. It is particularly critical in industries with perishable goods, seasonal demand, or rapid product obsolescence.

Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue measures predictable subscription-based income generated each month. It is a core KPI for SaaS and subscription businesses, providing insight into revenue stability and growth trends. MRR helps management forecast cash flows, evaluate pricing strategies, and assess customer retention. Growth in MRR indicates healthy customer acquisition and expansion. Declining MRR often signals churn issues or pricing pressure that require immediate action.

Customer Churn Rate

Customer Churn Rate measures the percentage of customers who stop using a product or service during a specific period. It reflects customer satisfaction, product value, and service quality. High churn erodes revenue growth and increases acquisition costs. Reducing churn is often more cost-effective than acquiring new customers. This KPI is essential for SaaS, telecom, and subscription-based businesses seeking sustainable long-term growth.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost measures the total cost of acquiring a new customer, including marketing, sales, and onboarding expenses. It helps evaluate the efficiency of growth strategies. A rising CAC without corresponding lifetime value growth can undermine profitability. This KPI is critical for budgeting, pricing decisions, and scalability assessments. When combined with customer lifetime value, CAC provides deep insight into business sustainability.

LTV / CAC Ratio

The LTV/CAC Ratio compares customer lifetime value to the cost of acquiring that customer. It indicates whether customer relationships are profitable over time. A ratio above 3 is generally considered healthy. This KPI helps management assess marketing efficiency, pricing models, and customer retention strategies. A weak ratio signals that acquisition costs are too high or customer value is too low, requiring strategic adjustments.