Financial KPIs for Owners: Cash Flow, Margins and Runway
The financial KPIs every business owner should know: cash flow, margins, runway, debtor days and the cash conversion cycle, with formulas and a rand example.
· 4 min read · Summarix team
The financial KPIs an owner needs fall into three groups: margins (are you making money on what you sell?), cash flow (is money arriving faster than it leaves?) and runway and liquidity (how long can you keep going?). Profit is an opinion shaped by accounting rules; cash is a fact. The KPIs below cover both, with formulas and a worked example in rand.
Margin KPIs
| KPI | Formula |
|---|---|
| Gross profit margin | (Revenue − cost of sales) ÷ revenue × 100 |
| Operating (EBIT) margin | Operating profit ÷ revenue × 100 |
| Net profit margin | Net profit after tax ÷ revenue × 100 |
| Contribution margin | (Revenue − all variable costs) ÷ revenue × 100 |
| Break-even revenue | Fixed costs ÷ contribution margin % |
Gross margin tells you whether pricing works. Operating margin tells you whether the business model works once overheads are paid. Tracking both monthly shows you whether a profit squeeze comes from pricing and supplier costs, or from overheads creeping up.
Cash flow KPIs
| KPI | Formula |
|---|---|
| Operating cash flow | Cash received from customers − cash paid for operating costs (from the cash flow statement) |
| Free cash flow | Operating cash flow − capital expenditure |
| Debtor days (DSO) | Trade debtors ÷ revenue × days in period |
| Creditor days (DPO) | Trade creditors ÷ cost of sales × days in period |
| Stock days (DIO) | Inventory ÷ cost of sales × days in period |
| Cash conversion cycle | Debtor days + stock days − creditor days |
The cash conversion cycle is the number of days between paying for stock or labour and getting paid by your customer. The longer it is, the more working capital you need to fund, and the faster you grow, the more cash you need.
Runway and liquidity KPIs
| KPI | Formula |
|---|---|
| Net burn | Cash out − cash in (per month, when negative cash flow) |
| Cash runway (months) | Cash available ÷ average monthly net burn |
| Current ratio | Current assets ÷ current liabilities |
| Quick ratio | (Current assets − inventory) ÷ current liabilities |
Worked example: a growing distributor
Say your distribution business had quarterly revenue of R2.4 million and cost of sales of R1.68 million (90-day quarter). At quarter end, debtors were R1.2 million, stock was R1.12 million and creditors were R560,000. Overheads are R180,000 a month and there is R450,000 in the bank.
- Gross margin: (2,400,000 − 1,680,000) ÷ 2,400,000 = 30%
- Debtor days: 1,200,000 ÷ 2,400,000 × 90 = 45 days
- Stock days: 1,120,000 ÷ 1,680,000 × 90 = 60 days
- Creditor days: 560,000 ÷ 1,680,000 × 90 = 30 days
- Cash conversion cycle: 45 + 60 − 30 = 75 days
- Break-even revenue: R180,000 ÷ 0.30 = R600,000 a month
Monthly revenue of R800,000 is well above break-even, so the business is profitable. But with a 75-day cycle, every extra R100,000 of monthly sales ties up roughly R100,000 × 70% cost × 75 ÷ 30 ≈ R175,000 of extra working capital. Grow too quickly and a profitable business runs out of cash. Cutting debtor days from 45 to 35, or stock days from 60 to 45, frees hundreds of thousands of rand without selling anything more.
Now runway. Suppose a large customer delays payment and the business burns a net R150,000 a month for a while. Runway is R450,000 ÷ R150,000 = 3 months. That is the number to watch closely and to discuss with your bank before you need to.
What to review monthly
- Gross and operating margin, this month vs last month and last year.
- Cash in bank, net cash flow for the month and runway.
- Debtor days, with a list of the ten largest overdue accounts.
- Stock days and any slow-moving stock (see retail inventory KPIs).
- A 13-week cash forecast, updated with actuals.
Upload your management accounts or debtors age analysis and Summarix produces a clear financial KPI report you can share with your partners or board.
Free plan: 5 AI reports a month, no card needed.
Making it routine
The hardest part is doing this every month rather than when something goes wrong. Build the review into your month-end close; our guide to month-end reporting for SA SMEs covers the process. If you report to investors or a board, see the board report guide. Summarix can take an export from your accounting system and produce the KPIs, charts and commentary, with every figure calculated from your data rather than estimated by AI.
This article is general information, not financial or tax advice. Your accountant can help you set the right definitions for your business and interpret the results.
Conclusion
Margins show whether you are making money; cash flow KPIs show whether you can keep the lights on while you do. Track gross margin, the cash conversion cycle and runway every month, and you will see a cash squeeze long before it becomes a crisis.
Frequently asked questions
How do you calculate cash runway?
Divide the cash you have available by your average monthly net burn (cash out minus cash in). Use a three-month average rather than a single month.
What is a good cash conversion cycle?
Shorter is better, and it varies by industry. Compare yours with your own history and focus on reducing debtor days and stock days.
What is the difference between gross margin and net margin?
Gross margin only deducts the direct cost of what you sold. Net margin deducts everything, including overheads, interest and tax.
Can a profitable business run out of cash?
Yes. If customers pay slowly, stock builds up or the business grows quickly, cash can run out even while the income statement shows a profit.