KPIs for CFOs: What to Put on Your Dashboard

KPIs for CFOs should answer five questions at a glance: do we have the cash we need, are we earning the margins we planned, are we using capital efficiently, can we trust our forecasts and what are the biggest risks? A CFO dashboard that tries to show everything shows nothing. The fourteen measures below are grouped by those questions, with a formula, a reading and a caution for each. They are not a mandatory list. Choose the dozen or so that fit your business model, define them once and show them against targets and trends. The list belongs to business analytics for finance and operations, follows KPI scorecards and 25 financial KPIs, and leads to operations KPIs and leading vs. lagging indicators. Many of these feed directly into budgeting and forecasting.

Cash and liquidity

1. Cash balance and 13-week cash forecast. The opening cash balance, with a rolling weekly forecast of receipts and payments for 13 weeks. It shows near-term liquidity and the headroom against minimum cash or covenants. Watch for forecast error: compare each week's forecast with actuals and track the gap. See cash flow management.

2. Free cash flow. Operating cash flow less capital expenditure. It shows the cash left for debt repayment and distributions. Watch for timing items, such as annual prepayments, that make a single month misleading.

3. Cash conversion cycle. Days of inventory plus days of receivables less days of payables. It shows how long cash is tied up in operations. A cycle of 97 days with annual cost of goods sold of $1.2 million means about $320,000 of cost-of-goods-sold-equivalent cash is tied up (1,200,000 × 97 / 365). Watch for improvements created by stretching suppliers, which can damage terms.

4. Liquidity headroom. Cash plus available credit less minimum liquidity needs. It answers how much room there is before the company has to act. Watch for facility renewal dates.

Profitability

5. Gross margin and contribution margin. Revenue less cost of goods sold, and revenue less all variable costs, each as a percentage of revenue. They show pricing power and the quality of sales. Watch for mix shifts that move the blended margin without any change in price. See DTC contribution margin.

6. Operating margin or EBITDA margin. Profit from operations as a percentage of revenue. It shows whether the model works after fixed costs. Watch for one-time items and capitalized costs.

7. Price realization. Net price as a share of list price. It shows leakage from discounts, rebates and allowances. If realization falls from 86 to 85 percent on $14 million of list-price sales, the loss is 0.01 × 14,000,000 = $140,000 of margin. See pricing analytics.

Efficiency

8. Days sales outstanding and past-due receivables. Receivables divided by daily sales, and the share of receivables over 60 days. They show collections discipline. Watch for large customers whose payment terms drive the average.

9. Inventory turns and aged stock. Cost of goods sold divided by average inventory, and the share of stock older than a set age. They show how efficiently inventory is used and how much write-down risk sits in stock. See demand planning and inventory optimization.

10. Days to close. Working days from period end to final books. It shows the efficiency of the finance function and the timeliness of information. Watch for quality: a fast close with many later adjustments is not better.

Planning accuracy

11. Forecast accuracy. Compare forecast with actual for revenue, margin and cash, using absolute percentage error. If revenue was forecast at $4.80 million and came in at $4.35 million, the error is 0.45 / 4.35 = 10.3 percent. Track it by horizon, such as one month and one quarter out, and look for bias (consistently high or low). Watch for managers who sandbag.

12. Budget variance. Actual less budget for revenue, cost lines and profit, with explanations for variances above a threshold. See budget variance analysis. Watch for whether variances are explained by price, volume, mix or cost, and not simply described.

Risk

13. Customer concentration and covenant headroom. The share of revenue and receivables from the top customers, and the margin of safety against debt covenants. A company with net debt of $4.5 million and EBITDA of $1.9 million is at 2.37 times; against a 3.0 times covenant, EBITDA can fall by about 21 percent before a breach. See customer concentration risk.

14. Foreign exchange and commodity exposure. The share of revenue or cost in foreign currencies or exposed commodities, and the effect of a plausible move. A 5 percent move in a currency that accounts for $3 million of costs shifts costs by $150,000. Watch for hedges and their expiry.

Designing the dashboard

A single page works well as a layout:

1. A top row of 5 to 6 tiles: cash, free cash flow, gross margin, operating margin, forecast accuracy and headroom.
2. A middle section with trend lines for the cash conversion cycle, price realization and margin.
3. A lower section with a table of the efficiency and risk measures with status colors.
4. A notes box with the three issues that need decisions.

Each tile shows the value, the target, the change from last period and a status color. Put definitions behind an information link. Review the page weekly for cash and liquidity items and monthly for the rest. See financial dashboards: what to show and what to skip.

Matching the set to the business

Common mistakes

• Showing more than a CFO can discuss.
• No targets, so no sense of good or bad.
• Mixing definitions between the dashboard and the board pack.
• Ignoring forward-looking measures.
• Leaving risk measures to an annual review.
• Not reconciling the numbers to the ledger.

Reading the dashboard together: a worked example

The measures interact, and a CFO dashboard earns its keep when it shows how. Take a company with $24 million of revenue, a 38 percent gross margin and $7.2 million of operating expenses (hypothetical). Gross profit is 24 × 0.38 = $9.12 million, operating profit is 9.12 - 7.2 = $1.92 million, and the operating margin is 1.92 / 24 = 8.0 percent. Now suppose price realization slips and the gross margin falls one point to 37 percent. Gross profit becomes 24 × 0.37 = $8.88 million, operating profit falls to 8.88 - 7.2 = $1.68 million, and the operating margin is 7.0 percent. A one-point change in gross margin looks small, yet operating profit fell by 0.24 / 1.92 = 12.5 percent. That leverage is the reason margin and price realization sit at the top of the dashboard: they are the early signals of profit changes that would otherwise appear only after the month closes.

Setting targets and thresholds

A tile without a target is a number without meaning. Set targets from three sources: the budget or plan, the history of the measure and an external or internal benchmark where one is credible. For each KPI, also set a tolerance band, such as green within 2 percent of target and red beyond 5 percent, so that the dashboard flags only what needs attention. Ask the owner of each measure to explain the target in a sentence. If they cannot say why 38 percent is the right gross margin target, the target is probably inherited and unexamined. Review targets annually, and when the business model changes.

Questions the board is likely to ask

• Do we have enough cash for the next quarter, and what is the downside case? Be ready with the 13-week forecast and a scenario in which receipts are 10 percent lower.
• Why did margin change? Be ready to separate price, mix, volume and cost.
• How reliable is the forecast? Show forecast accuracy and bias for the last four quarters.
• What are the biggest risks? Show customer concentration, covenant headroom and currency exposure.
• Where is cash tied up? Show the cash conversion cycle by component and the aged inventory and receivables.

A dashboard that answers these five questions on one page lets the CFO spend board time on decisions, not on assembling numbers. See board reporting packs for how to package the dashboard with commentary.

FAQs

What KPIs should a CFO track?

Cash and liquidity, profitability, efficiency of working capital, accuracy of planning and key risks such as concentration and covenant headroom.

How many KPIs should be on a CFO dashboard?

Around a dozen, enough to cover cash, profit, efficiency, planning and risk, but few enough to review in a meeting.

Which KPI is most important for a CFO?

It depends on the situation. In a cash-constrained company, cash and liquidity measures come first. In a stable one, margin and forecast accuracy may matter more.

How often should these KPIs be reviewed?

Cash and liquidity weekly, most others monthly, and strategic and risk measures at least quarterly.

Should CFO KPIs include operational measures?

Yes, where they drive financial results, such as inventory turns, on-time delivery and price realization.