Colorado State University Circumstantial of The Banking Industry Paper

Read Example 1 and explain your take away. Add additional information. Your document should include minimum 200 words plus credible references.

Example 1:

Key Performance Indicators

Background of the banking industry

The banking industry is a sector in the United States economy that has been very instrumental in holding and investing the financial assets on behalf of individuals in a bid to create more wealth for the investors. The banking industry plays a pivotal role in wealth management, corporate investments, depositing, and lending of finances. Based on the attributes mentioned above, the banking industry uses the key performance indicators vital in navigating their course of action to guarantee their clients’ success. Therefore, there is a need to set the right KPIs since they give insight into the business’s performance and highlight the areas that need to be addressed to avoid the poor performance of the business. This post will delve into the banking industry’s relevant KPIs and why they fit in the industry.

The most important key performance indicators are net profit margins, gross profit margins, operating margins, revenue growth rate, earnings before interest and tax, revenue growth rate, and capital return. The net profit margin signals the efficiency of the management in controlling the expenses. Thus, the banking industry opts to be efficient in controlling its cost to remain profitable (Khadafi et al., 2014). Efficiency in controlling the cost of sales and expenditure will increase the gross profit used by the bank invest and thus increase the lenders’ returns. Operating margins demonstrate the amount of revenue left over after payment of the variable expenses. Thus, the banking industry opts to check out on the variable expenses’ revenue because they change with the activity level (Sansone & Formisano, 2016).

Conversely, the ratios helps the managers know the amount of revenue left to cover for non-operating cost after all the variable cost has been paid. The ratio is essential since it is used by the creditors and investors to show how profitable its operations are. Therefore, it helps maintain the company’s smooth operations. The revenue growth rate is another key performance indicator in the banking industry. The revenue growth rate shows the decrease or an increase in a company’s revenue over time, which is a metric used by the management to assess their growth over time (Sansone & Formisano, 2016). The revenue growth rate is a metric that shows the revenue increase or decreases over time, and thus it signals to the managers about the financial health of the business. Earnings before interests and tax show the banking industries’ efficiency to manage their expenditure before they deduct for their tax purposes.

The ratios is important because it shows the efficiency of banking in ensuring that their expenses are minimized to lower the operational cost and increase profitability. The return on capital is essential to the banking sector because it signals the business’s efficiency in bringing in returns to the investors. Banking has several investors who require high returns. In essence, the banking sector is an essential industry that contributes to a significant amount of money to the United States economy. Therefore, there is a need to ensure that key performance indicators are met. The banking sector’s key performance indicator is the net profit margin, the gross profit margin, operating margins, revenue growth rate, and earnings before interest and tax. All the key performance indicators are essential for the growth of the banking sector since it ensures high returns to the investors and ensures economic growth.

References:

Khadafi, M., Heikal, M., & Ummah, A. (2014). Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12). http://dx.doi.org/10.6007/IJARBSS/v4-i12/1331

Sansone, M., & Formisano, V. (2016). Marketing Innovation and Key Performance Indicator in Banking. International Journal of Marketing Studies, 8(1), 44-56. http://dx.doi.org/10.5539/ijms.v8n1p44