KPI’s
(What they are and how to
measure)
Definition
KPI (Key Performance Indicators)
Key performance indicators define a set of values used to measure against. These
raw sets of values, which are fed to systems in charge of summarizing the
information, are called indicators. Key performance indicators, in practical terms and
for strategic development, are objectives to be targeted that will add the most value
to a business.
Why?
Comparison
Priorities
Decisions
Communication
Compare to Something:
Public Company
Stock Market
Departments
Personnel
Performance
Management
Focus:
Usage
Predictive Forecasting
Use:
Sources
Other Companies
IT
Management
Staff
Who should determine the
appropriate KPI’s for a company?
Where to get KPIs
Given
•
•
•
•
Quick
Pre-defined
IT can manage
Save time and effort
Some Adoption
Short lived
Developed
•
•
•
•
Participation
Discovery
Commitment
Belief
Full Adoption
Longevity
Get buy in from:
Employees
Stakeholders
Many KPIs exist
Debt
Asset
Management
Cash Flow
Indicators
Market Value
KPI Examples
DEBT
Asset
Coverage
Ratio
Capitalization
Ratio
Debt Ratio
Debt Service
Coverage
Ratio
Debt-toEquity Ratio
KPI Examples
DEBT
Debt-toIncome Ratio
Debt/EBITDA
Ratio
Equity
Multiplier
Financial
Leverage
Fixed Assets
to Net Worth
KPI Examples
DEBT
Long Term
Debt to
Capitalization
Ratio
Fixed Charge
Coverage
Ratio
Interest
Coverage
Ratio (ICR)
KPI Examples
LIQUIDITY
Acid-Test
Ratio
Cash Ratio
Current Ratio
Net Working
Capital
Quick Ratio
KPI Examples
LIQUIDITY
Working
Capital
Working
Capital Ratio
KPI Examples
FINANCIAL
Cash Return
on Capital
Invested
(CROCI)
DuPont
Formula
Earnings
Before
Interest After
Taxes (EBIAT)
EBIT (Earnings
Before Interest
and Taxes)
EBITDA
KPI Examples
FINANCIAL
EBITDARM
EBT (Earnings
Before Tax)
Effective Rate
of Return
Gross Profit
Margin
Net Profit
Margin
KPI Examples
FINANCIAL
NOPLAT (Net
Operating
Profit Less
Adjusted
Taxes)
OIBDA
Operating
Expense Ratio
Operating
Margin
Overhead
Ratio
KPI Examples
FINANCIAL
Relative
Return
Profit Analysis
Profitability
Index
Return On
Assets (ROA)
Return on
Average
Assets (ROAA)
KPI Examples
FINANCIAL
Return on
Average
Capital
Employed
(ROACE)
Return on
Average
Equity (ROAE)
Return On
Capital
Employed
(ROCE)
Return on
Debt (ROD)
Return On
Equity (ROE)
KPI Examples
FINANCIAL
Return on
Net Assets
(RONA)
Return On
Invested
Capital (ROIC)
Return on
Investment
(ROI)
Return on
Research
Capital (RORC)
Return on
Retained
Earnings
(RORE)
KPI Examples
FINANCIAL
Revenue per
Employee
Return on
Revenue
(ROR)
Return On
Sales (ROS)
KPI Examples
Accounts
ASSET
Payable
Asset Turnover
MANAGEMENT
Turnover Ratio
Cash
Conversion
Cycle
(Operating
Cycle)
Days Payable
Outstanding
(DPO)
Days Sales
Outstanding
(DSO)
KPI Examples
ASSET
MANAGEMENT
Defensive
Interval Ratio
(DIR)
Inventory
Turnover
Receivable
Turnover Ratio
Fixed Asset
Turnover
KPI Examples
CASH FLOW
INDICATOR
Cash Flow
Coverage
Ratio
Cash Flow
Management
Cash Flow
Return on
Investment
(CFROI)
Free Cash
Flows /
Operating
Cash Flows
Ratio
Price / Cash
Flow Ratio
KPI Examples
MARKET
VALUE
Business
Valuation
Dividend
Payout Ratio
Dividend
Policy Ratios
Dividend Yield
Enterprise
Value (EV)
KPI Examples
MARKET
VALUE
Gordon
Growth
Model
Enterprise
Value Multiple
EV/EBITDA
ratio
Loan-to-Value
Ratio (LTV)
Net Asset
Value per
Share (NAVPS)
KPI Examples
MARKET
VALUE
PEG ratio
Price-toResearch
Ratio
Price/Book
Value Ratio
Price to
Earnings Ratio
(P/E Ratio)
KPI’s
Pick the right ones for your
business
Industry Initiatives
Gartner
/EBRC
KPI Initiative
AICPA
KPMG,
Deloitte, PWC
The calculation
Definition of the measure…..
The right one(s)
• What data
•Transactional versus summary
•Financial/Non-financial
Sum of the parts
•
•
•
Accumulations of data
Time periods
Trending
Need to combine the “Right Values and
Tools
KPI example
Our Story
From Sales to
Professional
Services
Approximately 30
Measures Found
All are valid…
Narrow the focus…
3 are important
Top 3 Take-Aways
1
2
3


Multiple People
Multiple Departments

How and when will they be used



Keep it simple
The result is more important than the tool
It is NOT a techie solution
questions?
final thoughts?