In Episode 47 of the Financial Purpose Podcast, host Dale Shafer II, CFP, shares invaluable insights on how business owners can effectively manage their business and personal finances using very similar KPIs. Dale covers five critical areas that bridge business and personal finance: Cash Flow Management vs. Profitability, The Impact of Interest Rates and Inflation, The Importance of Financial Forecasting, Understanding Financial Statements, and The Role of Working Capital. Tune in to learn how to optimize your financial health and achieve your business and personal financial goals.
Key Terms discussed:
Current Assets: also known as a liquid asset, is any resource a company could use, turn into cash, or sell within a year.
Current Liabilities: a company’s short-term financial obligations that are due within one year or within a normal operating cycle.
Key Performance Indicators (KPIs) for Business financials:
Net Profit Margin: Net Income ÷ Total Revenue
EBITDA Margin: EBITDA ÷ Total Revenue
Current Ratio: Current Assets ÷ Current Liabilities
Quick Ratio (Working Capital): (Current Assets – Inventory) ÷ Current Liabilities
Return on Assets: Net Income ÷ Net Assets
Receivables Turnover: Total Revenue ÷ Accounts Receivable
Debt-to-Assets: Total Debt ÷ Total Liabilities ÷ Net Assets
Key Performance Indicators (KPIs) for Personal financials:
Free Cash Flow Margin (monthly): Net Income (after all expenses) ÷ Total Income
Net Worth: Total Assets – Total Liabilities (Debt)
Current Ratio: Current Assets ÷ Current Liabilities
Burn Rate (annualized): Spending (less debt payments) ÷ Total Income
Debt Rate (annualized): Total debt payments ÷ Total Income
Liquidity Rate (annualized): Liquid Assets ÷ Total Spending
Total Term Rate (annualized): Net Worth ÷ Total Spending
Learn more about our approach with these and other KPIs for business and personal financials:
