Guide
KPIs and ratios for a monthly MIS
A ratio is only useful in a monthly report if the reader knows what moved it. Here are the eight that belong in almost every MIS or management accounts pack — the formula, a worked example, and what a change actually tells you.
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Every ratio below comes from figures already in the trial balance, which is the point: they need no extra data collection, only a mapping of ledgers to report heads that stays the same from month to month. Two rules make them worth reading. Show each against the previous month and the same month last year, and compute them the same way every month — a changed basis looks exactly like a changed business.
The inputs for the worked examples
One month of a fictional distribution company, in thousands of dollars.
| Revenue for the month | 420 |
|---|---|
| Cost of goods sold | 285 |
| Operating expenses before depreciation | 96 |
| Trade receivables at month end | 690 |
| Inventory at month end | 540 |
| Trade payables at month end | 310 |
| Current assets | 1,480 |
| Current liabilities | 910 |
An invented company, not a customer. Gross profit is 420 − 285 = 135, and EBITDA is 135 − 96 = 39.
Eight ratios belong in a monthly MIS
1. Gross margin
Formula: Gross profit ÷ revenue × 100
Example: 135 ÷ 420 = 32.1%
What each sale leaves after the direct cost of making or buying it. A fall with steady volumes points at pricing, discounts or input costs.
2. EBITDA margin
Formula: EBITDA ÷ revenue × 100
Example: 39 ÷ 420 = 9.3%
Operating profitability before financing and depreciation, so it compares cleanly across months with different borrowing or capital spend.
3. Debtor days (DSO)
Formula: Trade receivables ÷ revenue for the period × days in the period
Example: 690 ÷ 420 × 30 = 49.3 days
How long customers take to pay. Rising debtor days with flat sales is cash stuck with customers, and usually the first thing to act on.
4. Inventory days
Formula: Inventory ÷ cost of goods sold for the period × days in the period
Example: 540 ÷ 285 × 30 = 56.8 days
How long stock sits before it is sold. Watch it against sales: building stock ahead of a season is a decision, building it without one is a problem.
5. Creditor days (DPO)
Formula: Trade payables ÷ cost of goods sold for the period × days in the period
Example: 310 ÷ 285 × 30 = 32.6 days
How long the business takes to pay suppliers. Higher frees cash, but a sharp rise can mean the business cannot pay rather than chooses not to.
6. Cash conversion cycle
Formula: Debtor days + inventory days − creditor days
Example: 49.3 + 56.8 − 32.6 = 73.5 days
The days between paying for stock and collecting from the customer — the working capital the business has to finance itself.
7. Current ratio
Formula: Current assets ÷ current liabilities
Example: 1,480 ÷ 910 = 1.63
Whether short-term assets cover short-term obligations. The trend matters more than any target figure.
8. Quick ratio
Formula: (Current assets − inventory) ÷ current liabilities
Example: (1,480 − 540) ÷ 910 = 1.03
The current ratio without stock, which cannot always be turned into cash quickly. Below 1 means paying current bills depends on selling inventory.
Financial KPIs for a small business: five are enough to start
A small business without a finance team does not need all eight on day one. Five financial KPIs, read every month against the same month last year, cover what an owner most needs to know — and each comes straight out of the trial balance:
- Revenue against the same month last year, so seasonality is taken out.
- Gross margin, the first place a pricing or cost problem shows.
- Cash at the month end, from the bank and cash ledgers, beside last month’s.
- Debtor days, because for most small businesses the cash problem is a collections problem.
- Current ratio, whether the bills due in the next year are covered by what will turn into cash.
Add inventory days if the business holds stock, and creditor days once suppliers start asking. Everything else can wait until someone asks a question these five cannot answer.
Mistakes that make ratios lie
Mixing period lengths. February’s debtor days computed with 30 days, or a year-to-date revenue against a month-end balance, produce a change that is arithmetic rather than business.
Letting the mapping drift. A new ledger posted to “other expenses” one month and to cost of goods sold the next moves gross margin by itself. The mapping is part of the ratio.
Reporting a ratio with no comparative. “Current ratio 1.63” means little; “1.63, down from 1.81 last month” is a question someone can answer.
What people ask about MIS ratios
How many KPIs should a monthly MIS have?
Fewer than most do. Six to ten ratios, each shown against the previous month and the same month last year, are read; a page of thirty is skimmed. Start with margins, working-capital days and liquidity, then add the two or three operational measures the business is actually run on.
Should debtor days use monthly or annual revenue?
Either, as long as the days match: month-end receivables over the month's revenue times the days in the month, or over annual revenue times 365. A single month is volatile for a seasonal business, so many preparers use the last three months' revenue and the days in those three months.
Why does my debtor days figure look too high?
Usually because receivables include sales tax — GST or VAT — while revenue does not. The two sides then measure different things. Either gross revenue up for tax, or note the basis so the figure is compared like with like from month to month.
Which of these ratios does Magic MIS compute?
All eight on this page: the margins in the profit and loss section, and current ratio, quick ratio, debtor days, creditor days, inventory days and cash conversion cycle in the ratios section, each against the previous month and the same month last year. Every figure is computed by the engine from the mapped trial balance, never by AI.
Read next
- How do you calculate debtor days?Debtor days = trade receivables ÷ the last three months' revenue × the days in them. A worked example, why three months beats one or twelve, and the GST effect nobody mentions.
- How do you calculate gross margin from a trial balance?(Revenue − direct costs) ÷ revenue × 100, with closing stock taken off direct costs. A worked example showing what the stock adjustment changes, and which ledgers count.
- How is EBITDA calculated in an MIS report?Revenue less direct costs, employee costs and other operating expenses, with other income kept below it. A worked example from EBITDA down to profit before tax.
- MIS commentary and variance analysis: how to write it so it gets readWriting the commentary in a monthly MIS or management accounts pack: which variances to explain, a materiality threshold, sentence patterns that work, and ones to avoid.
- Debtors ageing report: format, buckets and how to read itHow to build a receivables ageing report (aged debtors, A/R aging): choosing buckets, ageing from bill date or due date, unallocated receipts, and acting on the result.
Have the ratios computed for you, every month
Magic MIS computes these from your trial balance with the same mapping each month, shows each against the prior month and last year, and keeps them as live formulas in Excel.
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