Home » Leadership & Strategy » Strategy » Innovation Through Financial Data: 5 Metrics That Matter

Innovation Through Financial Data: 5 Metrics That Matter

Deep within public financial data are insights that can reveal huge opportunities for growth. Most CEOs leave the financial data to the experts as they have enough to deal with between making strategic decisions around growth, efficiency and profitability. However, it’s a missed chance for CEOs to really understand the bigger picture. Understanding the benefits hidden within public financial data can be too rewarding to pass off to another colleague.

Financial data is your window into the industry
What if you could see exactly how much liquidity your competition is sitting on? Or, if you could tell how your competition is investing its cash? It would be great to know that their primary innovations are being driven through acquisition and not through R&D. Exploring financial KPIs can provide a clear understanding of where your industry is headed.

Financial data can double as your strategic analysis partner
If your business provides goods and services to other public companies, the data buried within 10-Ks and 10-Qs can be invaluable. The data can tell you whether or not these companies would be good business partners or potential customers before any contracts get signed. All you would need to do is look at their growth and liquidity. Certain financial data can also allow you to evaluate the companies that are impacting your business. Once you have that data, you can then target those companies for sales and marketing.

“By analyzing CAPEX, you are able to see exactly where your competition is investing their cash.”

Here are some unexpected KPIs that can shed some insight into untapped competitive strategies.

1. Net Profit Margin and Gross Profit Margin. These two KPIs give you a bird’s eye view of the strength of your competition or customer. While the gross margin is not a definitive estimate of a company’s pricing strategy, it does provide a good estimate of their overall financial health. A high gross profit margin shows there’s enough cash to pay expenses over the cost of goods sold (COGS), as well as any profits in the future. The net profit margin takes into account all business expenses, not simply COGS, and is therefore a stricter metric to measure profitability. You can think of it as the infamous “bottom line” that every company cares so much about. Wouldn’t it be amazing if you could know your competition’s bottom line to the dollar amount?

2. Capital Expenditure as a Percent of Sales. Want to know if your competition is widening their scope or increasing operations? Are they really investing in growth and expansion? By analyzing CAPEX, you are able to see exactly where your competition is investing their cash. It can be in anything from repairs to creating new office space. CAPEX can also indicate whether a company is in a position to invest in products or services that will improve its growth trajectory, potentially giving you an opportunity to step in if your company offers such a solution.

3. Capital Expenditure Coverage Ratio. This is your customer/competition’s operating cash flow divided by its CAPEX. It reveals whether a business is producing enough cash flow to handle expenses. A high ratio shows that your competition is sitting on a lot of cash or profitable from its major operations. However, if the ratio is low, this shows they may not be generating enough cash or expenses are too high to be sustainable.

4. Intangible Assets. If you’re interested in developing additional growth strategies, a quick review of your competitor’s intangible assets can provide some insight. Are other companies purchasing trademarks? Are they investing heavily in research and development? What about acquiring companies in new markets? There might be a space in their expansion plan where you can insert yourself.

Financial data can be used as so much more than a progress report of your own company’s health. It offers a wealth of information on your competitors that can help you hone your company’s growth strategy or help turn around a quick, targeted market analysis.

About Emily Huang

Emily Huang
Emily Huang is the Co-Founder and CEO of idaciti. idaciti is a FinTech platform that provides curated financial data and empowers both corporate users and the investment community to create and share compelling narratives and analyses with data.