Over recent years, the chief financial officer (CFO) job has expanded far beyond its traditional role. CFOs are no longer just in charge of managing the company’s finances—they’re increasingly involved in strategic decision-making and leadership functions.
As CFOs take on these broader responsibilities, they need key performance indicators (KPIs) and metrics that offer greater visibility into their organization’s financial health and overall performance. When KPIs are aligned with business goals, CFOs can more effectively optimize and enhance accounts payable (AP) and other financial management processes—driving operational efficiency and business growth.
But with so much information and data at their fingertips, it can be hard to identify what to track. Read on to learn which KPIs are most important for CFOs to monitor and how automation and other technology can help financial leaders gain greater value from the metrics they track.
Key takeaways
- CFO KPIs offer greater visibility and actionable insights into an organization’s financial health, operational efficiency, and overall performance.
- Identifying the right KPIs enables CFOs to track their organization’s financial health and performance while guiding strategic decision-making.
- By automating the end-to-end AP process, CFOs can streamline and optimize KPI tracking.
What is a CFO KPI?
A KPI is a measurable value that tracks how effectively a company or department is achieving its key business objectives. CFO KPIs are essential in providing a clear picture of the organization’s financial operations and business performance, enabling financial leaders and their teams to make informed decisions about financial management processes.
KPIs offer insight into various business aspects, such as profitability, risk management, and sustainability. This includes key metrics that track the effectiveness of AP processes, which significantly impact cash flow management, operational efficiency, and supplier relationships.
What is the importance of KPIs for CFOs?
CFO KPIs are a crucial part of business strategy. They provide a quantifiable measure of performance against predefined objectives, enabling CFOs to track the organization’s financial health while guiding its strategic direction.
KPIs empower CFOs to identify opportunities for improvement and pivot strategies to get back on track toward progress. By closely monitoring these indicators, CFOs can ensure that the organization remains aligned with its strategic goals, optimizes its financial operations, and proactively responds to changing market dynamics.
Moreover, KPIs enable CFOs to foster alignment toward achieving shared goals, ensuring every team member is focused on the same objectives and the steps necessary to achieve them. By effectively managing and communicating these key performance indicators, CFOs can build trust and confidence among their teams as well as external stakeholders.
Challenges analyzing KPIs
Analyzing KPIs can be challenging due to the complexity and dynamism of the financial landscape. Companies generate enormous amounts of financial and operational data from disparate sources that need to be collected, consolidated, and continually updated to ensure information is accurate, relevant, and timely.
That process can be particularly challenging for accounts payable teams. Many companies still rely on manual processes and outdated technologies to manage invoices, payment processing, and data entry, leading to greater inaccuracies and delays that hamper decision-making.
These time-consuming manual processes slow down analysis and increase the risk of errors and fraud, making it difficult to obtain a real-time, accurate view of financial liabilities and cash flow forecasting. The intricacy and diversity of payment terms, supplier contracts, and compliance requirements across jurisdictions add layers of complexity to AP management.
Top KPIs and metrics for CFOs to watch
CFOs need clear, actionable KPIs that can help them navigate the year’s challenges and opportunities. While each organization’s unique goals and objectives dictate which metrics should be a top priority, the following metrics are among the most important.
Revenue and profit KPIs and metrics
KPIs and metrics focused on revenue and profit are crucial to understanding the effectiveness of a company’s business strategies, operational success, and market position. Here are some of the KPIs and metrics that highlight the pace at which a company expands its sales, income, and profitability.
1. Revenue growth rate
Formula: Revenue growth rate = (previous period’s revenue – current period’s revenue ÷ previous period revenue x 100
KPIs focused on revenue growth rate are crucial for assessing the effectiveness of a company’s business strategies, operational success, and market position. They highlight the pace at which a company is expanding its sales and income, serving as a key indicator of market demand, competitive strength, and potential for future profitability.
2. Gross profit margin
Formula: Gross profit margin = (revenue – company gross profit) ÷ revenue
Gross profit margin analyzes the revenue made after subtracting the cost of goods sold. Gross profit is assigned a dollar value, while gross profit margin is represented as a percentage. CFOs, investors, and financial professionals will use this metric to determine the health of companies. CFOs can also use this metric to make important decisions related to the pricing of products or ways to streamline operations.
3. Net profit margin
Formula: Net profit margin = (revenue – cost) ÷ revenue
Net profit margin differs from gross profit margin in that it goes beyond the cost of goods sold to include other business expenses. CFOs can use this metric to analyze their organization’s overall profitability.
4. Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Formula: EBITDA = earnings + interest + taxes + depreciation + amortization
EBITDA margin is an important measure of a company’s profitability. CFOs use it to check the company’s financial health before considering costs like loans and accounting choices. A healthy EBITDA margin indicates a strong profit generation capability from core operations, making it a critical metric for investors and management to assess financial health and make informed operational adjustments.
5. Operating profit margin
Formula: Operating profit margin = (operating income) ÷ (revenue)
Operating profit margins demonstrate the success of a company’s management and operating efficiency by showing how it has generated income solely through business operations.
6. Return on investment (ROI)
Formula: Return on investment = (final value, including dividends and interest – initial value) ÷ initial value
KPIs focused on return on investment (ROI) are fundamental for measuring the efficiency and profitability of a company’s investments. They provide crucial insights into how effectively a company is using its capital to generate returns, guiding strategic investment decisions, and evaluating the financial performance of specific projects or assets.
7. Contribution margin
Formula: Contribution margin = (revenue – variable costs) ÷ revenue
Contribution margin is the amount of revenue remaining from the sale of a product or service after all costs and variables have been deducted from the total sale. Using contribution margin as a metric and KPI for your business is crucial to understanding the profitability of individual products or services and making informed decisions about pricing, product mix, and where to allocate resources.
8. Customer acquisition cost (CAC)
Formula: Customer acquisition cost = (cost of sales – cost of marketing) ÷ new customers acquired
Customer acquisition cost (CAC) is a KPI that determines the average cost a company spends to acquire a new customer. It is an important metric for businesses to assess the efficiency and effectiveness of their marketing and sales efforts and the profitability of their company.
9. Customer lifetime value (CLV)
Formula: Customer lifetime value = (customer value x average customer lifespan)
Even for CFOs who may not oversee operations, having a firm understanding of customers can be advantageous for organizations. CFO Dive’s Lead Editor, Rober Freedman notes that, “CFOs would benefit from tracking and sharing customer experience and other operational key performance indicators; it can help in getting alignment on investment priorities across the organization.” Customer lifetime value is of particular importance, especially for companies that depend on recurring revenue from their clients.
Customer lifetime value (CLV) is a metric that measures the total net profit a business generates from a customer across their entire relationship. This metric takes into account the customer’s initial purchase, recurring purchases, and the average time spent with the company.
Additionally, understanding which customers are driving the most impact on business is important for making strategic decisions and for determining the best course of action to drive revenue. Workplace expert and author Amy Gallo writes in the Harvard Business Review, “Not all customers are created equal. If you’ve ever run a business (or even just been a customer yourself), then you know that some customers provide more revenue (and incur fewer costs) than others.” CLV can be a useful tool in determining which customers are most valuable to the organization.
10. Budget variance
Formula: Budget variance = (actual revenue – budgeted revenue) ÷ budgeted revenue
Budget variance compares the projected budget to a business’s actual results. This KPI can be performed on any aspect of a business’s finances, including revenue, margins, net income, and expenses.
Did you know? AP automation streamlines invoice processing and payment workflows, reducing operational costs and improving cash flow efficiency, which directly impacts revenue and profit margins.
Cash flow efficiency KPIs and metrics
Cash flow efficiency KPIs and metrics are essential to understand an organization’s ability to improve liquidity, cash flow, and financial performance. Here are some of the top cash flow KPIs your CFO should measure.
11. Cash flow conversion cycle (CCC)
Formula: CCC = (Days of inventory outstanding + days sales outstanding) – days payable outstanding
Cash flow conversion cycle (CCC) measures how quickly a company can convert cash on hand to even more cash on hand. This is done by measuring the number of days it takes for a business to convert the cash spent on inventory or services back into cash by selling said services or products. CCC will differ by each industry sector and the nature of business operations.
12. Operating cash flow
Formula: Operating cash flow = operating income + depreciation – taxes + change in working capital
Operating cash flow determines the amount of cash made from a business simply by performing normal business operations during a specific period of time. When using operating cash flow as a metric, businesses will consider their net income, non-cash expenses, and the net increase in net working capital.
13. Free cash flow (FCF)
Formula: Free cash flow = net operating profit after taxes – investment during period
Free cash flow (FCF) measures the cash a business generates after accounting for normal business operations and the cost of maintaining capital assets. FCF helps businesses determine where to allocate additional capital across operations.
Did you know? AP automation reduces manual errors, speeds up invoice processing, and enables better cash flow management, contributing to improved operational efficiency and cost control.
Financial efficiency KPIs and metrics
Financial efficiency and digital transformation are becoming bigger priorities for CFOs. In McKinsey’s podcast, Inside the Strategy Room, Liz Fasciana and Bjørnar Jensen discuss the importance of digitization for CFOs. During this discussion, Jensen notes that the majority of repetitive tasks should be automated, but only about half are for many organizations. Jensen explained that “instead of reporting on the past, the finance function needs to look toward the future and be able to steer the organization through uncertainty and volatility. It needs to create a higher sense of order and clarity around choices. You can’t do that if you’re spending 80% of your time reporting, or even worse, doing manual transactions with a high quality-control need.”
However, it’s important for executives to determine inefficiencies and opportunities before embarking on a digital transformation journey. For CFOs, looking to improve efficiency across the finance department, they can prioritize the following metrics.
14. Accounts payable turnover
Formula: AP turnover ratio = net credit purchases ÷ average AP balance
Perry Wiggins, CFO, secretary, and treasurer for APQC, noted that “an optimized accounts payable (AP) process not only helps organizations take advantage of early pay discounts and favorable payment terms but is vital for cash flow management more broadly. “ According to his article in CFO Dive, top performers were able to take an invoice and begin the process of scheduling a payment in 2.8 days or less. Those in the bottom percentile would take a week or more to complete the same process.
Accounts payable turnover measures the rate at which invoices are paid from a company to its suppliers. Measuring turnover in accounts payable is important as it provides insights into a business’s financial health and efficiency and helps determine whether the business is in good standing with its suppliers.
Organizations that can more quickly manage their invoices can be more strategic about how and when to process payments. An AP automation solution can allow companies to schedule these payments in advance, so organizations can optimize the payment mix or align their DPO with broader company goals. Additionally, companies can easily take advantage of early payment discounts or focus on other strategic initiatives.
15. Accounts receivable turnover
Formula: Accounts receivable turnover = net credit sale ÷ average accounts receivable
Accounts receivable turnover measures the amount of times a company collects its average accounts receivable balance per year. In other words, accounts receivable turnover measures how efficiently a business is using its assets.
16. Days payable outstanding (DPO)
Formula: DPO = accounts payable x number of days ÷ cost of goods sold (COGS)
KPIs on DPO provide vital insights into how long it takes a company to pay its invoices from the date of receipt. This metric can be strategic for companies looking to improve supplier relationships or increase the amount of cash on hand.
Anthony Jackson, a Deloitte Transactions and Business Analytics LLP principal, noted to the Wall Street Journal that “many organizations also use DPO and other working capital metrics as a basis for financial targets or to provide indicators regarding the success or failure of an organization’s policies. However, there are multiple ways leaders can calculate and evaluate their organization’s accounts payables with an eye toward improving liquidity, cash flow, and financial performance.”
Lengthening or shortening DPOs should be a strategic decision based on a company’s industry, needs, and goals. However, companies that choose to increase DPO to improve cash flow must also achieve a balancing act to keep suppliers happy. For example, organizations may choose to extend their invoice payment terms with less strategic suppliers while reducing them with important vendors to achieve an optimal mix.
By viewing this metric more strategically, CFOs can maintain healthy supplier relationships and balance cash reserves while enabling companies to leverage payment terms for better financial flexibility and operational liquidity. According to Jackson, companies can also evaluate DPO alongside other metrics, such as addressable DPO, weighted average days to pay, and weighted average terms, for further insights.
17. Working capital ratio
Formula: Working capital ratio = current assets ÷ current liabilities
Working capital metrics, including current and quick ratios, provide a clear view of a company’s short-term financial health and ability to cover short-term liabilities. These metrics are crucial for ensuring that a company maintains sufficient liquidity for day-to-day operations while optimizing its cash flow management and investment strategies for sustained growth and stability. Deloitte notes that improving working capital is important to help prepare companies for potential disruptions as a result of inflation. This metric can help CFOs further solidify the stability and future of the business.
18. Days-to-close
Formula: Days-to-close = Total number of days to close every sale ÷ total number of deals
Days-to-close metrics are critical for assessing the effectiveness of a company’s financial closing process. They provide a benchmark for how quickly an organization can gather, process, and report financial information, which is essential for timely decision-making and reflects the agility and accuracy of the finance team’s operations.
Did you know? AP automation reduces payment processing times, optimizes working capital management, and strengthens supplier relationships, contributing to improved financial efficiency.
Liability KPIs and metrics
KPIs and metrics that measure liability help inform CFOs how well-equipped their business is to meet their payroll, debt payments, and other cash obligations. Here are some of the most important liability KPIs to measure.
19. Debt-to-equity ratio
Formula: Working capital ratio = current liabilities ÷ shareholder equity
A debt-to-equity ratio measures a business’s liabilities to its shareholders’ equity. This is an important metric for CFOs to measure as it can be used to determine whether or not a company has overextended itself, which could later cause bankruptcy.
20. Interest coverage ratio
Formula: Interest coverage ratio = EBIT ÷ interest expense in a given timeframe
Interest coverage ratio KPI is used to understand how quickly and efficiently a company can pay interest on its outstanding debts. While it may vary from industry to industry, a higher coverage ratio is better for many businesses.
Did you know? AP automation helps optimize cash flow management, enhancing the organization’s financial stability.
How AP automation can improve KPIs for CFOs
AP automation technology can help refine a CFO’s approach to monitoring and improving KPIs. Automation enables organizations to process invoices and pay vendors quickly and efficiently—streamlining the end-to-end AP process from invoice capture and approval through payment processing and reconciliation.
By automating the entire AP workflow, CFOs can simplify and streamline mundane, repetitive tasks and provide continuous, real-time monitoring and analysis of financial metrics without the burden of manual tracking. With end-to-end AP automation, CFOs can focus their time and resources on strategic analysis and decision-making.
AP automation streamlines processes while minimizing the risk of errors, enhancing the accuracy and reliability of financial data. Ultimately, AP automation can help CFOs navigate the complexities of modern financial management and meet strategic financial goals with greater precision and less effort.
Did you know? MineralTree’s end-to-end AP solution enables you to streamline invoice processing and payment workflows, significantly reducing processing time and costs.
Case study: Simple Mills uses data to improve processes
Simple Mills, a leading provider of better-for-you crackers, cookies, snack bars, and baking mixes, was able to leverage AP reporting and analytics tools to improve its AP process. “We look at what could happen if we extend payment terms or ask for early-pay discounts with certain suppliers,” said Maddy McGannon, Simple Mills’ Controller. “MineralTree gives us the insight to analyze our payment data and use it to improve business decision-making.”
Simple Mills is also using this data to improve their invoice approval process, which has been key for the company as it continues to grow. “Now I can slice and dice all the MineralTree data to see things like how many invoices we have that might be above certain amounts,” McGannon noted. “This lets us make sure our approval thresholds are meaningful and valuable and don’t bog employees down with too many approvals. This is another way that MineralTree has helped us increase user productivity, even for employees who may not work in AP.”
Final thoughts
Your business can gain greater value by setting robust KPIs and tracking metrics that align with key business goals. Leveraging automated tools can also help you unlock greater operational efficiency and improve your financial results.
Blending actionable insights with end-to-end automation allows you to make smart, strategic decisions that will drive growth and long-term success. Learn how MineralTree’s solutions can help your business streamline and optimize KPI tracking.
CFO KPI metrics FAQs
1. What are the top 20 KPIs and metrics CFOs need to track to drive business growth?
While there are many KPIs and metrics that CFOs can measure, some metrics stand above others in terms of driving business success. Here are the top 20 CFO KPIs and metrics:
1. Revenue growth rate
2. Gross profit margin
3. Net profit margin
4. Earnings before interest, taxes, depreciation, and amortization (EBITDA)
5. Operating profit margin
6. Return on investment (ROI)
7. Contribution margin
8. Customer acquisition cost (CAC)
9. Customer lifetime value (CLV)
10. Cash flow conversion cycle (CCC)
11. Operating cash flow
12. Free cash flow (FCF)
13. Accounts payable turnover
14. Accounts receivable turnover
15. Days payable outstanding (DPO)
16. Working capital ratio:
17. Days-to-close
18. Debt-to-equity ratio
19. Interest coverage ratio
20. Current ratio
2. What is the most important metric that a CFO should track?
CFOs should prioritize tracking the gross profit margin, which analyzes the revenue made after subtracting the cost of goods sold.
3. What are the limitations of KPIs?
KPIs can offer very valuable insight and information for businesses looking to improve cash flow management, financial efficiency, revenue, profitability, and understand their liabilities. That said, getting a full scope and picture of your business requires a long period of time for KPIs and metrics to provide meaningful data.
4. Do CFOs and controllers care about the same metrics?
CFOs and controllers care about similar metrics, but have distinct roles in a company. CFOs are generally responsible for oversight of the financial standing of a company, while a controller oversees the day-to-day management.
