Finance KPIs
Dev, Weftwise's finance head, opens the March numbers. Revenue: ₹12 lakh (₹1 lakh is ₹1,00,000), the best month yet. Marketing is celebrating. Dev is not, because revenue only tells him how big the month was. Whether it was healthy, and whether the company can pay its weavers next month, are separate questions with separate KPIs.
The rule
Revenue shows size; margin shows health; cash shows survival.
Finance KPIs peel costs away from revenue one layer at a time:
| Line | March | How it is found |
|---|---|---|
| Revenue | ₹12 lakh | Value of delivered orders |
| Cost of goods sold (COGS) | ₹7.2 lakh | Fabric, weaving, stitching and packaging of the items sold |
| Gross profit | ₹4.8 lakh | Revenue − COGS |
| Operating expenses | ₹3.6 lakh | Salaries, rent, marketing, software |
| Operating profit | ₹1.2 lakh | Gross profit − operating expenses |
Each profit line becomes a margin when you divide it by revenue:
- Gross margin = 4.8 ÷ 12 = 40%. Of every ₹100 of sales, ₹40 is left after paying for the goods. Weftwise's target is 45%.
- Operating margin = 1.2 ÷ 12 = 10%. After running the whole business, ₹10 of every ₹100 remains.
Margins let you compare months and companies of different sizes. A shop with twice the revenue and a 20% gross margin keeps only ₹20 of every ₹100 it sells, half of Weftwise's ₹40.
Cash is a third question. Profit counts sales and costs when they are earned and used; cash counts money when it actually moves. In March Weftwise paid its weavers ₹5 lakh in advance for Diwali stock. That stock is not a March cost, because nothing made from it has been sold yet, so profit is untouched while the bank balance drops. Companies with healthy profits can still run out of cash, which is why finance teams track cash in the bank and how long it would last.
The shortcut
Peel from the top. Revenue, minus the cost of what you sold, gives gross profit. Minus the cost of running the business gives operating profit. Divide each by revenue to get its margin.
Start with revenue
₹12 lakh of delivered orders.
The classic trap is dividing gross profit by cost instead of revenue. ₹4.8 ÷ ₹7.2 is about 66.7%. That is markup, not margin, and it makes the business look far healthier than it is.
Drills
Answer fast — trust the rule.
Which cost belongs in Weftwise's cost of goods sold?
March shows ₹1.2 lakh of operating profit, yet the bank balance fell. What explains it best?
Remember
- Revenue shows size; margin shows health; cash shows survival.
- Peel from the top: revenue, gross profit, operating profit, each divided by revenue.
- Trap: dividing by cost instead of revenue, which gives markup, not margin.