Cash management is essential to the success of any business, and with the rise of cloud-based accounting systems, tracking key performance indicators (KPIs) has become easier than ever. One such system is NetSuite, which offers a suite of tools for managing finances and tracking KPIs. In this article, we'll discuss the vital KPIs that businesses should monitor in NetSuite to master cash control.
Cashflow KPI Quick References
| Formula | Use Case |
| Cash Ratio = (Cash + Cash Equivalents) / Current Liabilities | To measure a company's ability to pay off short-term liabilities with cash and cash equivalents. |
| Days Sales Outstanding (DSO) = (Accounts Receivable / Total Credit Sales) x Number of Days in the Period | To measure the average number of days it takes a company to collect payments from customers after making a sale. |
| Cash Conversion Cycle (CCC) = Days Inventory Outstanding + DSO - Days Payable Outstanding | To measure the amount of time it takes for a company to convert its inventory and accounts receivable into cash. |
| Net Income Margin = (Net Income / Total Revenue) x 100 | To measure a company's profitability after all expenses have been accounted for. |
| Operating Cash Flow (OCF) = Operating Revenues - Operating Expenses | To measure the cash a company generates from its operations after all expenses have been accounted for. |
| Gross Profit Margin = (Total Revenue - Cost of Goods Sold) / Total Revenue x 100 | To measure the profitability of a company's products or services after accounting for the cost of goods sold. |
| Debt-to-Equity Ratio = Total Debt / Total Equity | To measure the amount of debt a company has in relation to its equity. |
| Quick Ratio = (Cash + Cash Equivalents + Accounts Receivable) / Current Liabilities | To measure a company's ability to pay off short-term liabilities with its most liquid assets. |
| Accounts Payable Turnover = Cost of Goods Sold / Average Accounts Payable Balance | To measure the rate at which a company pays off its suppliers. |
| Working Capital = Current Assets - Current Liabilities | To measure a company's ability to cover its short-term liabilities with its current assets. |
Cash Ratio
The cash ratio is a metric that measures a company's ability to pay off its short-term liabilities with its cash and cash equivalents. In NetSuite, the cash ratio can be calculated by dividing the sum of cash and cash equivalents by the sum of current liabilities. This KPI helps businesses determine if they have enough cash to cover their short-term obligations.
Days Sales Outstanding (DSO)
The DSO metric measures the average number of days it takes a business to collect payments from customers after making a sale. This KPI is calculated by dividing the accounts receivable balance by the total credit sales and multiplying the result by the number of days in the period being measured. By monitoring DSO, businesses can identify any issues with their invoicing or collections processes and take steps to address them.
Cash Conversion Cycle (CCC)
The CCC is a metric that measures the amount of time it takes for a business to convert its inventory and accounts receivable into cash. In NetSuite, the CCC can be calculated by adding the Days Inventory Outstanding and the Days Sales Outstanding and subtracting the Days Payable Outstanding. A shorter CCC indicates that a business is able to turn its assets into cash more quickly, which is a positive indicator of cash control.
Net Income Margin
The net income margin is a metric that measures a company's profitability. This KPI is calculated by dividing the net income by the total revenue. By monitoring this metric, businesses can identify any areas where they may be overspending and take steps to reduce costs.
Operating Cash Flow (OCF)
The OCF metric measures the cash that a business generates from its operations. This KPI is calculated by subtracting the operating expenses from the operating revenues. A positive OCF indicates that a business is generating enough cash to cover its operating expenses, which is a critical factor in cash control.
Gross Profit Margin
The gross profit margin is a metric that measures the profitability of a business's products or services. This KPI is calculated by subtracting the cost of goods sold from the total revenue and dividing the result by the total revenue. By monitoring this metric, businesses can identify if they are pricing their products or services appropriately or if there are any inefficiencies in their production processes.
Debt-to-Equity Ratio
The debt-to-equity ratio is a metric that measures the amount of debt a business has in relation to its equity. This KPI is calculated by dividing the total debt by the total equity. A high debt-to-equity ratio can indicate that a business is at risk of defaulting on its loans, while a low ratio can indicate that a business is well-capitalised and has the resources to weather economic downturns.
Quick Ratio
The quick ratio is a metric that measures a company's ability to pay off its current liabilities with its most liquid assets. This KPI is calculated by subtracting the inventory from the sum of cash and cash equivalents and accounts receivable, and then dividing the result by the sum of current liabilities. A high quick ratio indicates that a business has enough liquid assets to cover its short-term obligations.
Accounts Payable Turnover
The accounts payable turnover is a metric that measures the rate at which a business pays off its suppliers. This KPI is calculated by dividing the cost of goods sold by the average accounts payable balance. By monitoring this metric, businesses can identify if they are taking advantage of favourable payment terms from suppliers or if they need to negotiate better terms.
Working Capital
Working capital is a metric that measures a business's ability to cover its short-term liabilities with its current assets. This KPI is calculated by subtracting the current liabilities from the current assets. A positive working capital indicates that a business has enough current assets to cover its short-term obligations, while a negative working capital indicates that a business may need to seek additional financing or take other steps to improve its cash flow.
In Summary
Mastering cash control is crucial to the success of any business, and NetSuite offers a suite of tools to help monitor vital KPIs. By keeping a close eye on the cash metrics, businesses can identify areas of improvement and take action to improve their financial performance. With these KPIs in mind, businesses can make data-driven decisions and take control of their cash flow management.
About Cashflow Plus for NetSuite
PKF Digital have created a NetSuite Cashflow App that expands upon NetSuite's out of the box cash monitoring tools. As a far more comprehensive solution, Cashflow Plus promises NetSuite users the ability to gain even more granular visibility over their cash management reporting. With Cashflow Plus, you can create detailed cash flow forecasts, track everything from budget to actuals and even drill down into specific accounts. With the right metrics in one place, Cashflow Plus makes managing your cash easier than ever before. It's time to get started with NetSuite Cashflow Plus.