My key KPI: Cash conversion

My key KPI
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My key KPI is a weekly content series where we ask CFOs and FDs what metrics and measures they use to drive their businesses forward.

The aim is to understand how different finance professionals across a broad array of industries and sectors use data to inform their decision making.
 
In this week's edition, Kate Coles of Enhance.finance, a coaching service for FDs and experienced accountant in industry. She tells us more about her key KPI: cash conversion.

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My Key KPI:  Cash Conversion.

This year, Kate Coles made a transition more common among accountants in practice. That is, from accountant to coach. She left industry to start Enhance finance, a coaching service for finance directors.

But Coles still has FD sensibilities and drawing from her finance experience at companies like Graze and Innocent Drinks, she told AccountingWEB about her key KPI: Cash conversion.

“Cash conversion is important as it measures how well a business converts theoretical profit into actual cash,” she said. “You have to have cash to survive. A profitable business with no cash will fail and a loss-making business (ie most startups) can survive if they have a healthy bank balance.

It’s formulated rather simply: change in cash over period divided by profit after tax for period. “I still use it fairly frequently to understand how well a company generates cash which is needed for growth, investment, survival.

“It’s also useful to understand the cash cycles in a business if there is a lot of investment. Most business people and a lot of accountants are too focused on profit and not enough on the other measures of business performance, cash conversion being one of these.”

“I am also a fan of Net Promoter Score metrics to measure staff engagement.”

 

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

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