Top 5 KPIs for Strategic Planning

Similar to the fuel gauge in a car, the amount of working capital a company has on hand tracks closely to how much forward momentum it has left – something vital to understand as part of any strategic effort. Working capital indicates the amount of readily available capital, including cash, accounts receivable, and short-term investments, with current liabilities subtracted like short-term loans, expenses, and accounts payable. Declining amounts of working capital suggest a strategy that isn’t working or that could be approaching failure.

As a fundamental measurement of profitability, the debt to equity ratio speaks loudly about strategic performance. It is measured as total liabilities over total shareholder equity. It’s important to track this metric, closely and continuously, to understand how much the company is using debt to fuel growth.

The current ratio, or the ratio of total assets divided by total liabilities, indicates how consistently a company can meet its financial obligations. It’s a telling indicator of financial performance, which is why the current ratio has a big impact on credit worthiness. A current ratio that is too low may scare away creditors and investors, which can slow down a growth strategy. Alternatively, needing to reduce financial liabilities to raise the ratio could also impact how the company plans to grow.

Dividing the company’s net income by the shareholder’s total equity reveals the return on equity. The metric highlights whether a company is making enough revenue to satisfy investors and attract future ones. Like the rest of the metrics on this list, the return on equity transcends any specific strategy and helps all companies understand their performance regardless of the objective.

Every business needs to understand what it is spending to attract customers compared to what it gains for each customer attracted. This metric highlights the performance of sales and marketing while helping to inform financial forecasts. Since every strategy, to some extent, seeks to attract more customers and increase their overall value, those in charge of strategy need to know if this metric is rising or falling.

By Insightsoftware