CFOs play a vital role in medium-sized companies as well as large enterprises. However, the way these CFOs monitor the financial performance of their respective companies may differ.
Let's first look at the differences in how CFOs of medium-sized companies differ in monitoring their financial performance compared to CFOs of large enterprises. CFOs in medium-sized companies typically have fewer resources and access to financial information. Due to this, they tend to focus more on short-term goals and finances, as opposed to long-term strategies.
On the other hand, CFOs in large enterprises have a broader scope of responsibilities. They communicate with various stakeholders to gather market insights, understand the organization's financial position related to industry standards, and explore the growth potential. This allows them to focus on more long-term strategies and financial objectives. Now, let's look at the top 5 metrics CFOs of both medium-sized companies and large enterprises should monitor
Top 5 Metrics for CFOs of Medium-Sized Companies
- Revenue Growth Rate: Monitor the company's revenue growth rate to evaluate its performance over time accurately.
- Cash Flow Forecasting: This metric helps CFOs project cash flow for future periods, enabling them to allocate funds accordingly.
- Gross Profit Margin: This metric is the percentage of sales that exceed the cost of goods sold. It's essential to monitor, as it indicates how much cash a company earns from its sales after accounting for the cost of goods.
- Customer Acquisition Cost: This metric measures the cost of acquiring new customers, enabling CFOs to identify opportunities to lower costs and increase profit margins.
- Debt-to-Equity Ratio: This metric measures the company's leverage by comparing its debt to the shareholder's equity.
Top 5 Metrics for CFOs of Large Enterprises
- Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA): This metric is vital for large enterprises to evaluate their profitability, as it measures earnings before paying interest, taxes, depreciation, and amortization.
- Working Capital Ratio: This metric measures the company’s short-term financial strength and liquidity, calculating the ratio of current assets to current liabilities.
- Net Promoter Scores: This metric measures customer satisfaction and loyalty, indicating the company's future profitability and facilitating growth and targeted marketing.
- Return on Investment Capital (ROIC): This metric is an indicator of a company's efficiently using its invested capital to generate profit. The company’s operating income is calculated by dividing it by the total invested capital. This metric is important for large enterprises as it helps them identify underperforming assets and evaluate their investment strategies.
- Return on Equity (ROE): This metric measures the amount of profit a company generates in relation to the shareholder's equity. It's a critical metric for large enterprises that have many shareholders as it indicates how much profit the company is generating per dollar invested by shareholders.
