Successful entrepreneurs know that in order for their company to grow, it is of fundamental importance to be able to analyze the operational results that were obtained in a given period.
To focus on the business is to have the ability to understand financial statements.
Knowing what are the main financial indicators and how they work is important to make a good financial management of the company and all its resources.
In other words, it is a safer way for entrepreneurs in Brazil to draw up action plans to bring better results to their long-term venture.
1. Gross Margin
The Gross Profit Margin is one of the main financial indicators of a company, because it shows entrepreneurs how much the company receives from a sale of a product or service, after discounting the costs and expenses they had with the production and sale.
To calculate the Gross Margin, you must know the Gross Profit, that is, the profit obtained after discounting the costs.
- Formula: Gross Margin = (Gross Profit / Total Revenue) x 100
2. EBITDA Margin
The name EBITDA is the acronym for the English expression Earning Before Interests, Taxes, Depreciation and Amortization. In Portuguese, it means Profit Before Interest and Income Tax (LAJIR).
As the name already indicates, ebitda margin is the statement of profit (or loss) that a company generates, without taking into account the financial effects and payments of taxes.
With this, ebitda margin informs entrepreneurs the value of each sale and the impact they had on cash flow.
To calculate the EBITDA Margin, simply add all the following factors:
- EBITDA Margin Formula = Net Operating Income + Depreciation + Amortization
Remembering that depreciation is when the value of the product decreases because of wear and tear and when the product ceases to be useful.
Amortization, on the other, is related to the loss of the value of the asset that has a defined useful life.
3. Net Margin
The Net Margin, in turn, indicates what was left in the cash flow of the amount obtained by sales, already decounting all expenses and taxes.
A large Net Margin means that entrepreneurs will receive a good amount after making a sale and reducing their expenses and taxes.
To calculate this important formula and keep an eye on finances,simply divide the net profit divided by net sales revenue.
- Net Margin Formula: Net Margin = (Net Income / Sales) x 100
4. Fixed Costs and Variable Costs
Fixed Costs and Variable Costs are excellent financial indicators and serve not only to have an accurate report of the company’s results but also to know if the price of a product or service is correct.
Fixed Costs are represented by the company’s fixed expenses, that is, that they do not change over time.
A very simple way to understand whether a cost is fixed or not is to analyze whether it will vary as production increases. In a way, fixed costs are important for entrepreneurs to keep their business running.
Check out some examples:
- Rent an office;
- Cleaning material;
- Safety devices;
Variable Costs, in turn, vary proportionally as the production and sale of a product or service grows.
They are often variable expenses:
- Raw Material;
To keep finances up to speed, entrepreneurs must know the Fixed and Variable Costs, since it is a way to find out what is the minimum amount of a product or service that the company must sell to cover costs and profit.
5. Cash Flow
The financial indicators that cash flow indicates are of utmost importance to keep finances up to speed.
In fact, one of the things that usually separatesuccessful entrepreneurs from those who close the doors of their business quickly is precisely the financial management of what comes in and what comes out of the venture’s cash.
It is one of the daily financial indicators, as cash flow can be evaluated daily and, in addition, entrepreneurs can project a future estimate.
In other words, analyzing cash flow and designing how the situation will be in the short and long term is a great way to make good decisions like making a new investment or expanding the business.
6. Degree of Customer Satisfaction
Many people do not consider the degree of customer satisfaction as one of the financial indicators. However, knowing customers and how satisfied they are with the product and service is an excellent way for entrepreneurs to understand the true situation of their company.
Thanks to these types of financial indicators, entrepreneurs in Brazil can understand the market and create strategies to retain their customers. Learn some questions that can be used to investigate the degree of customer satisfaction:
- Would you recommend the company to a friend?
- From 0 to 10, how much are you satisfied with our product or service?
- From 0 to 10, how satisfied are you with our service?
- From 0 to 10, how satisfied are you with the agility in delivery?
Financial indicators are fundamental for all entrepreneurs who want to become successful entrepreneurs, asthey enable results to be accurate and thus control of finances is greater.
In the case of proper financial management, it is of paramount importance that all numbers are computed and enter into the calculation of financial indicators.