Accurately measuring metrics that correlate with growth and profitability are essential to ensuring the sustainable financial health of your business, but with changing business models and compressed production cycles, traditional metrics like earnings per share (EPS) or revenue growth are no longer adequate to give you a clear picture of your company’s financial wellbeing.
Home Depot, for example, experienced falling share prices over a five year period in the early 2000s. Despite poor stock performance, the market value of Home Depot’s debt and equity was $88 billion at the end of 2003. With $29 billion invested in operating capital, their market-value added (MVA) , which measures the difference between the market value of Home Depot’s debt and equity and the amount of capital invested, was $59 billion. By this metric Home Depot was the second healthiest retailer in the country behind Wal-Mart.
In the same way that EPS can be a poor indicator of overall financial health, strong revenue growth does not always indicate higher profitability.
To get a more refined understanding of your business’s performance and the factors that contribute to or inhibit growth, you’ll need to peel the onion back a few layers.
These six KPIs can help you lay bare the realities of your business’s growth, or lack thereof, and help you improve your bottom line with superior business insights.