Track your results to grow your business 

To keep a business on the path to success, it's crucial to monitor key financial indicators. These figures help determine whether the company is profitable, able to cover its day-to-day expenses, and has the resources needed to invest. Among the most important are revenue, the working capital ratio, operating income, net income, and cash flow. Each of these offers valuable insights to better understand the financial situation and make informed decisions.

Revenue

The cornerstone of a business's activity

Revenue is the basic data to analyze the business as it impacts all other indicators. It represents the total sales made over a given period, whether they are goods (products, merchandise) or services.  

It is an important starting point, as it gives an idea of the size and activity of the business. However, revenue alone does not indicate whether a business is profitable. To determine this, it is also necessary to consider the expenses required to generate those sales, such as the cost of raw materials, salaries, rent, financial interest, and taxes. 

Comparing revenue with these expenses helps measure the profitability and financial health of the business. Other indicators, such as the margin or net profit, help refine this analysis and provide a better understanding of the overall situation. 

The working capital ratio 

The key indicator for sound management 

The working capital ratio indicates the amount available to a business to finance its ongoing operations. In other words, it is the money available to cover daily expenses, pay accounts receivable, and invest in new projects. 

There are two main indicators to measure this financial capacity: 

• The working capital ratio Current assets – Current liabilities
  • It shows whether the company has enough short-term resources to cover its short-term debts. 
• The liquidity ratio: Current assets – Inventory – Accounts receivable – Current liabilities 
  • It shows whether the company has enough short-term resources to cover its short-term debts.
• The liquidity ratio: Current assets – Inventory – Accounts receivable – Current liabilities
  • It measures the company's ability to quickly respond to an urgent need for cash by considering only immediately available assets, such as cash or certain investments. 

Unlike the working capital ratio, the quick ratio excludes inventory and accounts receivable, as they cannot always be converted into cash quickly. This ratio is therefore stricter and reflects the company's ability to respond to a financial emergency. 

Operating income

 The benchmark for evaluating the company's performance 

The operating income mesures, as its name suggests, the gross margin generated solely by the normal and ongoing operations of the business. In other words, this indicator does not take into account the financing policy (loan duration, interest rates) or tax considerations (taxes). It highlights the economic performance of the business and is calculated from the revenue.

How to calculate it? 
Operating result = Revenue – Cost of raw materials, supplies, livestock, etc. – General expenses and external charges – Salaries and social charges – Depreciation and inventory changes

This indicator is particularly important for financiers, as it shows the company's ability to generate profits solely through its operations. A good operating profit means that the business can cover its costs while generating a margin to pay its lenders (interest) and shareholders (dividends).

Net income

The ultimate indicator of your profitability 

The net income or residual balance, also called the "bottom line", represents the actual amount of money available after all expenses have been deducted, including exceptional events, financing costs, and taxes. 

What is it used for? 
This balance can be used for: 

• Pay shareholders (via dividends)
• Reinvest in the business (self-financing of new projects)

Net income also appears on the liabilities side of the balance sheet, under shareholders’ equity. 

How to calculate it? 
Net income = Operating income +/- Financial income +/- Exceptional income – Employee profit-sharing – Income taxes

This indicator is particularly followed by owners, investors, and lenders because it shows the real leeway of the company and its ability to generate profits after all expenses. 

Cash flow

 The true reflection of your company’s financial health

The cash flow is one of the most important financial indicators, as it shows where the money that allowed the business to operate over the past year came from. After revenue, it’s often the first thing to analyze in a financial report. Cash flow is divided into three categories: 

Operating cash flow: represents the money generated by the company's core business activities. It can be either positive or negative, but it is the most important because it demonstrates the company's ability to finance its operations using its own revenue. 

Investing cash flow: refers to the outflows of cash for the purchase of assets (such as equipment or buildings) or inflows from the sale of these assets. 

Financing cash flow: encompasses funds from borrowing or capital contributions, as well as debt repayments or payments to shareholders. It can also be used to finance investments or strengthen working capital. 

With these three cash flows, one can quickly assess the financial situation of a company:

• Is it in good financial health? 
• Is it growing or remaining stable? 
• Is it using financing, and for what purposes (projects or working capital)?

Analyzing cash flows helps to understand where the actual cash is coming from and how it is being used—an essential factor in assessing the financial strength of a company. 

Indicator	Role	Key questions
Revenue	Measure activity	Are my sales increasing?
Working capital ratio	Monitor payment capacity	Is my business profitable?
Operating income	Evaluate operational performance	Can I reinvest or pay dividends?
Net income	Calculate the final profit	Can I cover my short-term liabilities?
Cash flow	Monitor cash flow movements	Where does the money come from? Where does it go?

The importance of understanding your financial indicators 

To truly benefit from financial indicators, it’s essential to understand them thoroughly. By keeping an eye on revenue, the working capital ratio, operating income, net income, and cash flow, you’ll be able to accurately assess your company’s financial health and make informed strategic decisions. Each of these indicators provides a unique perspective on profitability, liquidity, and growth. A solid grasp of this data will help ensure your company’s financial stability and support effective planning for the future.