Key performance indicators (KPI) are a set of quantifiable measures used to gauge company performance over time and help you choose which stock to buy. KPIs are typically used to track how well a company is reaching its strategic and operational goals. KPIs can also be used to compare one company with one or more other companies, e.g. with its cheif competitors.
The exact key performance indicators varies between industries and also between companies within the same industry. The specific metrics a company tracks depends on its current aims, and may change over time as the business evolves and sets new goals.
Example: A software company has decided that its main goal for next year is to be the fastest growing company in its industry. To measure this, they look at revenue growth year over year (YOY).
Examples of financial KPIs:
|This is a profit-based metric, colloquially referred to as ”the bottom line”. It represents the amount of revenue that remains as profit for a given period, after removing all the company’s expenses for that period, including taxes and interest payments.
For comparative analysis, net profit is converted from a dollar amount into a percentage of revenue: the net profit margin.
|Gross profit margin
|The gross profit margin (also known as gross margin) reveals the proportion of money left over from revenues after account for the cost of goods sold (COGS).
You calculate the gross profit margin by dividing gross profit by revenues.
|You calculate the current ratio by dividing the company’s current assets by its current debts.
|Revenue growth year over year (YOY)
|A commonly utilized metric for tracking growth.
Examples of nonfinancial KPIs:
|Foot traffic year over year (YOY)
|Foot traffic month over month (MOM)
|Number of repeat costumers vs new customers