4 Financial indicators every entrepreneur should monitor

Proper financial management is crucial because it allows you to make timely, well-informed decisions in response to changing conditions. Most entrepreneurs in Dubai, especially SME owners, may not have a solid background in finance. However, accounting firms in Dubai recommend you have a basic understanding of the key concepts of financial accounting which will enable you to make better business decisions.

Review your indicators every month

You must be consistent in reviewing financial data at least once a month and undertaking more in-depth analysis every quarter. You want to compare your company's performance to goals set forth at the start of the year, which are based on a long-term strategic plan, and make changes as needed throughout the year to meet the goals. You want to make the correct judgments at the appropriate time, and if you wait till the last minute to tackle problems, it would almost likely be too late.

Inventory turnover 

Inventory turnover is a financial ratio that helps you to understand the number of times your company has sold and replaced inventory during a specific period. A good inventory turnover ratio is between 5 and 10 for most industries and measuring inventory turnover helps you to make better decisions on pricing, manufacturing, marketing, and purchasing new inventory. You can seek the help of audit firms in Dubai to effectively monitor inventory turnover & other key financial metrics.

Net profit margins are a better measure of overall profitability. The net profit margin is key as it measures costs of goods sold, operating expenses, interest, and taxes. Net profit margin differs from gross profit margin in that the former takes into account not only the cost of goods sold but all other related expenses.

Gross profit margin

What is a good gross profit margin ratio? Gross profit margin is a critical financial metric used by analysts and stakeholders to check a company’s financial health. It is a profitability ratio used to measure the percentage of revenue left after subtracting the cost of goods sold. The cost of goods sold implies the direct cost of production excluding operating expenses, interest, or taxes. 

One of the benefits of working capital is that you have more flexibility, enabling you to satisfy your customers' orders, expand your business, invest in new products and services, and monitoring the working capital helps you to measure your company’s available operating liquidity. Accounting services in Dubai can help you monitor all the significant financial metrics.

Even a company that is generating profits can quickly find itself in trouble if it doesn’t have enough cash to operate. Thus, you should know your financing needs in advance in order to manage your business proactively.