* Is High or Low Best: Lower is Better
Finance Expense as a Percentage of Total Revenue measures the cost incurred by the company's Finance Department relative to total revenue generated by the company over the same time period. Finance Department expense should consume a relatively small portion of the company's assets, particularly in industries such as heavy manufacturing and consumer packaged goods, where day-to-day operations are more focused on producing and managing tangible assets. On the other end of that spectrum, investment banks, large insurance firms and commercial banks typically demand more focus, and cost, on internal finance-related function (i.e., treasury management, international tax management, etc.) to support their operations. In any case, relatively high finance costs may be related to highly manual (i.e., error prone) accounting processes, low-value work (e.g., excessive report generation, etc.), overstaffing and/or general inefficiencies within finance processes (e.g., financial close and reporting, account reconciliations, general ledger management, etc.).
The total expense incurred by the company's Finance Department divided by total revenue generated by the company over the same time period, as a percentage. Total finance expense should include all labor, technology and other overhead costs related to running the Finance Department.
Two values are used to calculate this KPI: (1) total Finance Department expense over a certain period of time, and (2) total revenue generated by the company over the same time period. Total finance expense should include all labor (wages, salaries, benefits), technology and any other overhead costs related to running the Finance Department, which typically includes the accounts payable, accounts receivable, accounting, financial reporting, treasury, tax, expense management, and budgeting/forecasting functions. In some cases, the payroll and internal audit/compliance functions may also be included within the Finance Department. Total revenue should include the revenue generated by the organization(s) supported by the Finance Department. Do not include regulatory fines, taxes, or interest-related expenses in the numerator for this calculation.
(Finance Department Expense / Total Revenue) * 100
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