What Is a KPI in Accounting?

(With 15 Common Examples)

Indeed Editorial Team

Updated March 10, 2023

Key performance indicators (KPIs) are metrics that professionals use to track and measure their
performance or progress toward goals. Accounting professionals within organizations may use
such metrics to assess the financial health and performance of the business. Leaders can monitor
and analyze various metrics to identify where the business succeeds and where it needs
improvement, helping them develop and implement strategies. In this article, we provide 15
examples of KPIs in accounting used by businesses and define them.Read more: A Complete
Guide to Key Performance Indicators (KPIs)
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What is KPI in accounting?

A KPI is a metric businesses use to assess and monitor the workforce's progress toward
organizational or financial goals. In an accounting department, these metrics can help track
effectiveness or productivity within the department itself and the financial health of the
organization. Leaders can use and analyze these metrics to develop more effective financial
strategies to achieve organizational or departmental goals. By continuously monitoring KPIs, the
business can assess what works and what still needs improvement.
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List of 15 KPIs used in accounting

Here are 15 examples of KPIs that accounting professionals or departments may use to assess the
financial performance of a company or department:

1. Budget variance

Budget variance is a KPI that compares actual performance to budgets or forecasts. Accounting
professionals can measure this KPI for the company as a whole or for specific departments and
projects. They can also measure various financial metrics, including revenue, expenses or
profitability. Companies assess the results based on whether they see a large or small variance. A
significant variance, whether it's a positive or negative value, can signal that the business may
need to make changes to reduce it. Here's the formula for calculating this metric, and you can
multiply it by 100 for a percentage:Budget variance = (actual results - budgeted amount) /
budgeted amountRelated: Variance Analysis: Definition, Formulas and Examples

2. Line of business (LOB) revenue vs. target

The LOB revenue versus target is a KPI that compares a company's line of business revenue
against its projected revenue. Line of business refers to products or services offered by a
company, and the accounting professionals may use this metric to assess specific departments or
offerings. This metric doesn't use a formula, but businesses can calculate their actual LOB
revenue to determine how it compares to their projections. They can use this form of variance
analysis to identify areas for improvement and develop more effective strategies or budgets to
help ensure they meet their revenue goals.

3. Line of business (LOB) expenses vs. budget

The LOB expenses versus budget is a KPI that compares a company's actual expenses to the
amount it budgeted. Expenses represent costs to the business. Like LOB revenue versus target,
this KPI is a form of variance analysis. Companies can assess how their actual expenses compare
to their budgeted expenses, allowing them to monitor whether they're on track or need to make
changes. Understanding issues that arise with expenses can also help them develop more
accurate budgets in the future to avoid high variances.

4. Operating cash flow

The operating cash flow (OCF) is a KPI that companies use to assess whether they can pay for
routine or essential operating expenses. A company generates this cash flow from its core
operations, and it typically appears on the cash flow statement. A positive result means the
company has sufficient funds. Here are the formulas for calculating operating cash
flow:Operating cash flow = operating income + depreciation - taxes + change in working
capitalOrOperating cash flow = total revenue - operating expenses

5. Operating cash flow (OCF) ratio

The operating cash flow ratio is a KPI that compares a company's operating cash flow against its
current liabilities. Current liabilities represent debts due within a year, such as accounts payable.
The result helps the company understand whether it can pay off its short-term obligations using
its operating cash flow. For example, a result greater than one shows the company has sufficient
funds to operate and pay its current liabilities. As this figure increases, it demonstrates the
organization's financial growth. The formula for calculating this metric is:Operating cash flow
ratio = operating cash flow / current liabilitiesRead more: 5 Common Cash Flow Ratios
(Plus Definitions and Formulas)

6. Working capital
Working capital represents the cash that's immediately available to a company. This KPI is often
used to measure the liquidity of a company. It incorporates the company's assets, such as cash,
short-term investments and accounts receivable, and current liabilities. A company can use this
KPI to determine whether it has sufficient cash to pay off its short-term debts. If the results are
low in the dollar amount, it signals that the company may have challenges, though a significantly
high amount could also signal the company isn't optimizing its assets effectively. The formula
for calculating this metric is:Working capital = current assets - current liabilitiesRead
more: How To Calculate Working Capital

7. Current ratio

The current ratio is another KPI that demonstrates a company's liquidity. Like working capital, it
incorporates current assets and current liabilities by comparing them. The results of this KPI help
show whether the company can pay its financial obligations in a consistent and timely manner.
Companies often use this KPI to assess their solvency within a defined period, using information
from the balance sheet.When assessing the results, a current ratio between 1.5 and three typically
represents a healthy financial situation. A negative current ratio signals that the company may
have challenges addressing its short-term debts, though some companies may experience periods
where the current ratio is below one because they're making investment decisions or gaining debt
in the interest of growth. Here's the formula for calculating this metric:Current ratio = current
assets / current liabilitiesRelated: What Are Liquidity Ratios? Definition and Example

8. Quick ratio

The quick ratio is another liquidity KPI companies use to assess their ability to cover current
liabilities. It's sometimes referred to as an “acid test.” This KPI measures how well the company
can pay its short-term financial obligations by converting its quick assets into cash. A quick asset
is one that the business can turn into cash without discounting its value, sometimes called near-
cash assets. A higher result typically represents more liquidity and better financial health, while a
lower ratio signals the company may face issues paying its debts. Here are the formulas for
calculating this metric:Quick ratio = cash and equivalents + marketable securities +
accounts receivable / current liabilitiesOrQuick ratio = current assets - inventory - prepaid
expenses / current liabilities

9. Debt-to-equity ratio

The debt-to-equity ratio is a KPI that compares a company's total liabilities against its
shareholders' equity. Total liabilities include both short- and long-term financial obligations,
while shareholders' equity represents the amount of equity available to owners after paying
liabilities. This KPI demonstrates how the company funds its growth and uses shareholders'
investments. The ideal result can vary depending on the organization and its industry. A high
ratio shows that the company pays for its growth by gathering debt, and companies often seek a
ratio below one or, at most, two. Here's the formula for calculating this metric:Debt-to-equity
ratio = total liabilities / total shareholders' equityRead more: What Is a Good Debt-to-
Equity Ratio?
10. Accounts payable turnover

The accounts payable turnover is a KPI that companies can use to understand the rate at which
they pay their suppliers, vendors or creditors. Accounts payable represents money owed to such
entities. Companies measure this KPI at different periods, often yearly, and may compare them
against one another to assess performance. The higher the ratio result, the more quickly the
company pays its accounts payable. If a company notices its ratio decreases from one period to
another, it may signal issues with cash flow. Here are the formulas for calculating this
metric:Accounts payable turnover = net credit purchases / average accounts payable for a
periodOrAccounts payable turnover = total supply purchases / [(accounts payable at
beginning of period + accounts payable at beginning of period) / 2]

11. Accounts receivable turnover

The accounts receivable turnover is a KPI that helps companies understand the rate at which they
collect payments from customers. Accounts receivable represents money owed by customers
after they've received a good or service. Like the accounts payable turnover, the higher the ratio
result, the more quickly the business receives its payments. Similarly, companies track this
metric over periods, such as a year. If the ratio is low or declines, the business may implement
strategies to help improve this rate. Here's the formula for calculating this formula:Accounts
receivable turnover = net value of credit sales / average accounts receivable for
periodOrAccounts receivable turnover = net value of credit sales / [(accounts receivable at
beginning of period + accounts receivable at beginning of period) / 2]

12. Days payable outstanding

Days payable outstanding (DPO) is another KPI that measures the rate at which a company pays
its accounts payable. Companies often look at this metric over a specific period, such as a year or
a quarter, and measure the result in days. The fewer the days, the more quickly the company
repays its purchases owed to creditors. A high DPO may show that the business can retain its
available funds for longer and maximize them, though it may also signal the business has
challenges repaying bills on time. Here's the formula for calculating this metric:Days payable
outstanding = (accounts payable x number of days) / cost of goods sold

13. Inventory turnover

Inventory turnover is an efficiency KPI that shows the rate at which a company sells and
replaces its inventory. Companies often measure this KPI over a specific period, looking at the
average inventory sold during the time frame. When assessing the results, a low ratio typically
signals the company may purchase too much inventory or doesn't make sufficient sales. A higher
ratio potentially demonstrates lower inventory and stronger sales. As companies track the
inventory turnover, a significantly high ratio could signal that they don't have sufficient
inventory to meet customers' demands. Here are the formulas you can use to calculate this
metric:Inventory turnover = sales / inventoryOrInventory turnover = cost of goods
sold / [(beginning inventory + ending inventory) / 2]
14. Return on equity

Return on equity (ROE) is a KPI that compares a company's net income to its units of
shareholder equity. It's related to how much profit the company generates for its shareholders.
With this metric, a company can assess its profitability and financial efficiency. Companies may
measure this KPI during each accounting period to compare the results. If the ROE results are
high or show improvement, it signals to shareholders that the company is optimizing the
investments effectively. For example, the company may use those investments to maintain
operations and grow the business. Here's the formula for calculating this metric:Return on
equity = net income / average shareholders' equityRelated: A Guide to Profitability Ratios

15. Time to close

Time to close, also called days to close, is a KPI that shows how effectively the business meets
its targeted closing date. It compares this target to the actual amount of days it took to close.
“Closing” represents the final portion of the accounting cycle, sometimes referred to as “closing
the books.” During closing, the accounting team transfers the balance out of temporary accounts
and into permanent accounts, resetting the temporary accounts' balances to zero for the next
accounting period. The close process begins when the accounting period ends. Here's the
formula for calculating this metric: