Financial efficiency is a valuable lens through which you can assess the success and sustainability of your company. If you’re aiming to thrive in a saturated market, this article should help you understand and improve it to boost competitiveness.

What does financial efficiency mean?

It’s essentially your company’s ability to use its resources as effectively as possible to maximise income and profitability. It’s a top-level view of managing funds in a way that enhances value while minimising waste and inefficiency.

Key aspects include effective cash flow management, prudent expenditure and strategic investment decisions. The most efficient companies have robust planning and analysis mechanisms in place to ensure resources are allocated where they’re most likely to generate the biggest returns.

How can you measure financial efficiency?

Measuring financial efficiency involves various ratios and metrics that provide insights into how well your company utilises its resources. The headline KPIs to consider include:

• Return on Assets (ROA): This ratio indicates how efficiently your company uses its assets to generate profits. It’s calculated by dividing net income by average total assets. A higher ROA percentage signifies greater efficiency.
• Return on Equity (ROE): ROE measures profitability relative to shareholder equity. It’s calculated by dividing net income by shareholder equity. A high ROE percentage indicates that your company is effectively using its equity base to generate profits.
• Asset Turnover Ratio: This ratio shows how efficiently your company uses its assets to generate sales revenue. It’s calculated by dividing sales revenue by average total assets. A higher asset turnover ratio indicates better utilisation.
• Operating Margin: Operating margin measures the percentage of revenue that remains after accounting for operating expenses. It’s calculated by dividing operating income by revenue. A higher operating margin suggests better cost management and operational efficiency.
• Current Ratio: This liquidity ratio assesses your company’s ability to cover its short-term obligations with its current assets. It’s calculated by dividing current assets by current liabilities. A current ratio above 1 indicates good short-term financial health.

How can you drive financial efficiency?

Improving the financial efficiency of your company is no easy task, particularly for larger corporations. Moving the needle requires both strategic planning and consistent operational improvements. Consider the following:

• Improving budgeting and forecasting: Accurate budgeting and forecasting help in aligning resources with business goals, ensuring that funds are allocated efficiently.
• Optimising working capital: Efficient management of working capital, including inventory, receivables and payables, ensures that your company maintains liquidity while minimising costs.
• Continuous performance monitoring: Regularly reviewing financial metrics and KPIs allows for timely identification of inefficiencies and prompt corrective actions. Legal compliance is another important aspect to prevent penalties and unnecessary costs – corporate lawyers are best placed to help here.
• Cost management: Identifying and eliminating unnecessary expenses can significantly enhance financial efficiency. This involves negotiating better terms with suppliers, reducing waste and improving operational processes.
• Employee training: Equipping employees with the necessary skills and knowledge to manage resources effectively can drive overall efficiency. This includes technical training for specific roles and education around cost management and financial KPIs.

Financial efficiency is an important indicator of your company’s success and sustainability. Take a close look at the figures if you haven’t done so before.

‘Data’ is the word of our new tech epoch, as the overwhelming and dramatic power of modern technology has ushered in a loud world of big data and bigger cross-industrial impacts. Data and analytics play a huge part in business development, financial investment, market infiltration and industrial longevity – so it only stands to reason that data plays just as well within a business as without.

While Human Resources are often considered with emphasis on the ‘human’, and rightly so (given the often personal nature of HR dealings on a day-to-day basis), data presents incredible opportunities for departmental productivity and business-wide benefits besides. But how exactly can HR departments leverage analytics for such benefits?

1. Introduction to Data-Driven HR

First, let’s define our topic. The combination of analytics, HR and software is often easily referred to as ‘data-driven HR’: HR processes driven by data, whether in pursuit of refinement, consolidation or improvement. Various different metrics can be used by HR departments to more effectively track employee trends, catch issues before they escalate and guide the business internally to longevity and success.

Of course, this isn’t possible without the right brains for driving the data in the first place. Here, HR software equipped with advanced analytics capabilities is pivotal in driving such change, giving HR professionals and their seniors the tools necessary to make informed decisions.

2. Key HR Metrics to Track

In a world of big data, there are a great many different data sets that a HR department can focus on – but some are naturally not as worthwhile as others. From an overarching business perspective, some key HR metrics include general employee turnover rates (or employee ‘churn’), and time-to-hire averages – both of which can give a clear picture of a business’ successes or failures in recruitment and retention. Employee churn is a particularly important metric to track, even if only for the high costs that fast turnover can represent.

On the individual employee basis, metrics relating to employee KPIs can be tracked with consummate ease using an interconnected HR portal system. These metrics make it possible for department managers to better instruct their charges, and for the business to better audit the productivity and professionalism of its cohort.

3. Implementing HR Analytics Tools

Implementing analytics tools on a business-wide basis is only rendered easy by the existence of purpose-built software systems, and is only getting easier. Since the coronavirus pandemic and its associated lockdowns, the resilience of cloud collaboration software has only increased, making for a new era of interconnectivity and digital communication.

This is also translated well into the world of HR, where unilateral cloud access to resources makes it far easier for department heads to input, receive and understand data. The only real roadblocks to a future of complete integration relate to user-friendliness and certain shortfalls in IT training amongst older managers. In spite of such challenges, HR analytics represents a key chance for a given business to find its quality.