The best financial KPIs for the distribution industry

Finance professionals in distribution businesses face a persistent challenge. That is to effectively blend operational and financial data to gain a complete picture of company performance. Traditional financial ratios often exist in isolation, making it difficult to assess the broader impact of operational decisions on financial outcomes.

Many businesses struggle to integrate their data sources, as financial metrics typically reside in ERP or accounting systems, while operational data is scattered across inventory, sales, and human resources platforms or all is trapped within a complex ERP system like Netsuite or Infor. Without a reliable way to connect these data sources, insights are incomplete or inaccurate, leading to inefficiencies and missed opportunities for optimization.

What is a blended KPI?

Blended key performance indicators —those that combine financial and operational metrics—are crucial for a more holistic view of a distribution business’s health. A ratio like revenue per employee, for instance, requires both workforce data and sales figures to be meaningful. These insights help leaders pinpoint inefficiencies, such as whether revenue growth is driven by productivity gains or simply by hiring more staff.

To fully understand inventory profitability, like GMROI requires using financial costs, stock movement and demand and supply chain trends.  However, the complexity of integrating multiple data streams often forces finance teams to rely on manual reporting, slowing decision-making and increasing the risk of errors.

This is where a business intelligence platform like Phocas is beneficial because it has the powerful ability to merge financial and operational data. By automating data integration and providing drill-down insights, finance teams can break free from disconnected spreadsheets and static reports produced via your ERP.

A blended KPI approach allows businesses to track performance across departments, align financial goals with operational realities, and make more informed strategic decisions. Whether optimizing workforce efficiency, improving cost-to-serve calculations, or enhancing inventory management, the ability to connect financial and operational data in one platform gives finance professionals the clarity they need.

You can also measure custom distribution metrics

Phocas also enables businesses to customize KPIs to fit their specific needs, ensuring that financial and operational data work together to provide the most relevant insights. For example, a wine distribution company may want to compare the gross profit of selling a single bottle versus a six-bottle bulk sale. With Phocas, they can access real-time data on cost per unit, discounts, and shipping expenses to calculate profitability at both levels. This metric can be automated, continuously updated, and even integrated directly into financial statements, eliminating manual calculations and ensuring accuracy. By tailoring KPIs to reflect their unique business model, distributors can make more informed pricing, inventory, and sales strategy decisions—ultimately improving margins and operational efficiency.

Recommended financial KPIs for a distribution business

Having KPIs that monitor warehouse and distribution center performance is essential in a distribution business. Equally important are KPIs that track the company's financial health and bottom line. Here are some examples of financial KPIs in distribution that the finance department should monitor.

1. Accounts Receivable Turnover

This financial distribution KPI is used to determine how effectively a company collects its receivables (money) from clients. It is generally perceived that a high accounts receivable ratio is created by having a good collection process, as well as high-quality clients. A low ratio implies the opposite: a poor collection process and financially unstable clients.

Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable

2. Days Sales Outstanding (DSO)

The DSO metric is an extension of the accounts receivables turnover ratio mentioned above. This distribution accounting metric calculates the average number of days it takes for a company to receive payment after a sale. This is also a key component of the cash conversion cycle mentioned later.

DSO = Accounts Relievable * Number of Days / Total Credit Sales

3. Operating Cash Flow

Every business needs to have a cash flow, or else they won’t stay in business for very long. This distribution performance metric measures the amount of cash flow generated from normal business operations.

Operating Cash Flow = EBIT + Depreciation – Taxes – Change in Working Capital

4. Unlevered Free Cash Flow (UFCF) or Free Cash Flow (FCF)

The FCF metric takes the operating cash flow metric one step further by subtracting operating costs and investments. This can then be used to check if a company generates enough income to cover their interest or dividend payments.

Unlevered Free Cash Flow = Operating Cash Flow – Capital Expenditures

5. Working Capital

Working capital is the amount of money a company has readily available to be used when needed.

Working Capital = Current Assets – Current Liabilities

6. Quick Ratio

The quick ratio is a common financial ratio that any distribution company will utilize to quickly estimate financial health by determining its ability to cover its short-term liabilities immediately.

Quick ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

7. Current Ratio

This distribution KPI is similar to the quick ratio, but a bit more forward looking. While it still measures the ability to meet short-term obligations, it does so over the period of one year, rather than immediately.

Current Ratio = Current Assets / Current Liabilities

8. Accounts Payable Turnover

This distribution performance metric measures how effectively a company pays its suppliers.

Accounts Payable (AP) Turnover = Total Supply Purchases / ((Beginning AP – Ending AP) / 2)

9. Cash Conversion Cycle (CCC)

The CCC is a financial metric that measures the amount of time it takes for a company to convert its entire inventory back into cash. The main components of this are days inventory outstanding, days sales outstanding, and days payables outstanding. This is a distribution KPI metric that should be directly reported to the company CFO.

CCC = Days of Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding

10. Total-Debt-to-Asset Ratio

This is a very straight forward distribution KPI metric. As implied by the name, it compares the total debt load of a company to the company’s total assets. It is a useful distribution KPI for the CFO to track as it can be used as an indicator for loan approval.

Total-Debt-to-Asset = (Short-Term Debt + Long-Term Debt) / Total Assets

11. Gross Profit Margin

This financial KPI is of importance for the distribution sector. It calculates the amount of money left after subtracting the cost of goods sold from the revenue as a percentage of revenue. This establishes a baseline of profitability for a company.

Gross Profit Margin = (Net Sales – Cost of Goods Sold (cogs) / Net Sales

12. Operating Profit Margin

The operating profit margin builds upon the gross profit margin calculation. It subtracts both the cost of goods sold, as well as operating expenses, from the total revenue to determine the percentage of revenue left after these costs.

13. More profitability ratios

Return on Assets (ROA) measures how efficiently a company uses its assets to generate profit. A higher ROA indicates better financial performance.

ROA = Net Income / Total Assets

Return on Equity (ROE)  assesses how effectively a company generates profit from shareholders’ equity. A higher ROE suggests strong financial management and profitability.

ROE = Net Income / Shareholders’ Equity

EBIT (Earnings Before Interest and Taxes) represents a company’s operating profitability before deducting interest and taxes. It helps assess core business performance without the impact of financing decisions.

EBIT = Revenue – Operating Expenses

14. Efficiency ratios for inventory

Inventory turnover measures how frequently a company sells and replaces its inventory within a period. A higher turnover indicates efficient inventory management.

Inventory Turnover = Cost of Goods Sold / Average Inventory

Days sales in inventory (DSI)  calculates the average number of days inventory is held before being sold. A lower DSI indicates faster inventory turnover.

DSI = (Average Inventory / Cost of Goods Sold) × 365

15. Invoice analysis

Average invoice value tracks the average dollar amount per invoice, helping businesses understand pricing trends and customer purchasing behavior.

Average Invoice Value = Total Sales Revenue / Number of Invoices

Average daily sales measure the revenue generated per day, offering insights into sales consistency and forecasting accuracy.

Average Daily Sales = Total Sales Revenue / Number of Days in Period

16. Customer analysis

Revenue per customer evaluates the average revenue generated from each customer, helping businesses assess customer value.

Revenue per Customer = Total revenue / number of customers

Profit per customer calculates the average profit a business earns from each customer, aiding in customer segmentation and pricing strategies.

Profit per customer = Total profit / number of customers

17. Headcount analysis

Revenue per employee measures how efficiently a company generates revenue per employee, indicating productivity and workforce efficiency.

Revenue per employee = Total revenue / number of employees

Profit per employee assesses the profitability of the workforce by measuring the profit generated per employee.

Profit per employee = Total profit / number of employees

18. Product analysis

Profit per unit evaluates the profitability of individual products, aiding in pricing and cost management decisions.

Profit per unit = (Selling price per unit – cost per unit)

Now add your key metrics to a CFO dashboard

A CFO dashboard brings all these KPIs together, providing a real-time, single-source view of both financial and operational performance. While dashboard options are endless, their effectiveness depends on using 'actuals' from across the business. This is where the power of a BI and FP&A platform like Phocas comes in, automatically pulling information from multiple sources and updating dashboards whenever the source data changes in your ERP.

With this seamless integration, everyone from the CFO to the purchasing manager can trust that they are making decisions based on the most current and reliable data.