Any business or company that utilizes financial data for decision-making and strategy needs to have the appropriate tools in place for the Chief Financial Officer to do his or her job. The CFO’s typical day is putting out fires and anticipating where the next big one will be so that resources can meet it, avoiding a conflagration altogether. As a result, real time financial data, measurements, and snapshots are critical to keep a tab on the company pulse and early warning signs of financial problems.
In that regard, any enterprise system or financial system you should consider needs to be able to provide a CFO 10 minimum dashboards or snapshots absent anything else when it comes to reporting. These include the following:
- Working Capital – Fundamentally, solvent capital is the bulk of what a business needs to make large leaps forward into a market. The day to day cash flow simply isn’t enough. So when the big decisions roll in, the CFO needs to know in a moment does he have the capital ready or incoming to address a big market move or change by the time it arrives financially as a cost. That measurement, the net of asset worth less liabilities, can’t be delayed waiting for the end of the month reporting.
- Operating Cash Flow – The bane of most business owners and managers, cash flow works on an entirely different pace than income, sales and revenue. While on paper things can look great, what’s actually in the checkbook dictates whether the company can meet payroll on payday or pay the bills timely to keep operations going. Without a running balance on cash flow in the bank, a business can shut down in days. No surprise, the CFO literally needs to have a checkbook view every day of the week of where the company bank accounts are to plan for tomorrow.
- Current Ratio – A lot can be buried in the payables and receivables totals and what really matters is how well both areas are being processed. The Current Ratio metric on assets versus liabilities gives a temperature gauge on whether your accounting office and financial system is on track or falling behind due to solvency issues maybe.
- Payroll Headcount Ratio – Your employee body can fluctuate very quickly over time. Anyone who has had to handle workers compensation premium management can tell war stories about how fast the type and number of workers a company has can change. The Payroll Headcount Ratio gives management a clear picture on full-time labor assets versus part-time versus ontracted services.
- Return on Equity – If you’re a public company, your shareholders want to know where their investments are going. The Return on Equity is your key indicator whether they are going to be happy at your next quarterly report meeting or upset. As a CFO, looking ahead for such reports is critical because it allows you to make changes now for what’s coming. The Return on Equity metric slices your financial accordingly from the investment perspective versus the operating view.
- Quick Ratio or Acid Test – Where long-term prospects may look good, just like cash flow your short-term window and obligations matter for daily success. The Quick Ratio flags problems quickly for immediate turn around and decision changes.
- Debt to Equity – It’s easy to borrow and generate cash flow via debt for your business, but how is the management of that debt being handled? Are the payments on track or are they starting to become a burden on the business? The Debt to Equity ratio takes a hard look at your commitments and flags where your business is becoming handicapped by borrowing and credit obligations.
- Accounts Payable Turnover – Along with cash flow management, the rate of accounts payable processing is a basic pulse barometer of operations. Fast turnover means your business is very solvent, taking care of obligations and clearing them, and staying in the black. Poor turnover can signal delays due to cash problems, lack of trained staff, or mistakes which need to be fixed.
- Accounts Receivable Turnover – Customer credit is only beneficial to the extent that customers actually pay their accounts. Otherwise your company is giving away goods or services for free. The Accounts Receivable turnover is a key metric on how fast cash and sales revenue is actually coming into your bank account. Long delays can mean having to borrow while waiting or having to delay operations. Neither are position a CFO wants to be in.
- Inventory Turnover – While not a direct tie to sales and cash, inventory turnover is a followup metric to verify revenue figures are valid. The more goods going out the door, the more one should see sales rise. If not, then it could mean there is a waste or fraud problem occurring with inventory and big losses are happening for the company.
While there are plenty more metrics which can be added to the above list, obviously profit measurements for example, the above dashboard metrics are key for the CFO in making quick decisions and knowing where he or she stands on a given day. The data behind these reports is being generated all the time, so with the right system these metrics can be crafted and updated daily.
Given today’s technology, no CFO should be hitting the 9am executive meeting without having already read the dashboard printout for the day at 7 or 8am.
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