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Seven Key Metrics Private Equity Firms Need to Measure

Written by Anthony Meshnick | Apr 3, 2023 12:44:31 PM

Topics: NetSuite, Blog Posts

[Est. Read Time - 2:50] To ensure they meet their targets, private equity firms track a range of key performance indicators (KPIs) to measure the performance of their investments.

Some of the most common KPIs that private equity firms track include:

  1. Revenue Growth: This measures the increase in a company's revenue over a specific period, usually year-over-year. Private equity firms look for companies with a strong track record of revenue growth, as this indicates that they are gaining market share and increasing their customer base.

  2. EBITDA: Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a measure of a company's profitability. Private equity firms track EBITDA margin to see how efficiently a company is generating earnings from its operations. They often use this metric to compare companies within the same industry.

  3. Cash Flow: This measures the cash a company generates from its operations. Private equity firms track cash flow to ensure that their portfolio companies have enough cash to fund their operations and pay down debt.

  4. Debt-to-Equity Ratio: This measures the amount of debt a company has relative to its equity. Private equity firms track this ratio to ensure that their portfolio companies are not overly leveraged and can weather economic downturns.

  5. Return on Investment: This measures the return a private equity firm generates on its investments. Private equity firms typically have a target return they need to meet to satisfy their investors, and they use this metric to track their progress towards that goal.

  6. Budget vs. Actual: This measures a company's budget compared to actual results and the reasons for the variance are interpreted.

  7. Last Twelve Months (LTM): This measures the timeframe of the immediately preceding 12 months. It is also commonly designated as trailing twelve months (TTM). LTM is often used in reference to a financial metric used to evaluate a company's performance, such as revenues or debt to equity (D/E). Although a 12-month period is a relatively short time span for examining company performance, it is considered useful because it indicates a company's most recent performance, and is indicative of the company's current state. The terms "last twelve months" or "trailing twelve months" frequently appear in a company's earnings reports or other financial statements.

To track these KPIs and others, private equity firms often use enterprise resource planning (ERP) software like NetSuite ERP.

NetSuite ERP is a cloud-based software solution that helps businesses manage their financials, supply chain, and operations. It provides real-time visibility into a company's financial and operational performance, making it easier for private equity firms to track their portfolio companies' KPIs.

One of the main benefits of NetSuite ERP is that it provides a single source of truth for a company's financial data. Private equity firms can use this data to create reports and dashboards that track their portfolio companies' performance against their KPIs. This can help them identify trends and potential issues before they become significant problems.

NetSuite ERP also provides advanced forecasting and budgeting capabilities. This allows private equity firms to create detailed financial projections for their portfolio companies, helping them to make informed investment decisions. Additionally, NetSuite ERP can automate many routine accounting tasks, freeing up time for private equity firms to focus on strategic initiatives.

In conclusion, private equity firms track a range of KPIs to measure the performance of their portfolio companies. NetSuite ERP can help these firms track these KPIs and provide real-time visibility into a company's financial and operational performance.

With NetSuite ERP, private equity firms can make informed investment decisions, identify potential issues early on, and improve the overall performance of their portfolio companies.

Business Solution Partners is a 5 star NetSuite Solution Provider with over 30 years of experience and over 400 successful NetSuite deployments. We have the knowledge and expertise to help our customers successfully implement and manage NetSuite in order to meet their objectives. 

Having worked with many private equity firms and their portfolio companies and being private equity backed ourselves we know firsthand what’s important to you and we’re committed to being a true partner, from licensing to implementation to ongoing training and support. 

Schedule a 15 minute executive summary to discover how Business Solution Partners is helping firms like yours achieve more with NetSuite. 

Written by Anthony Meshnick

Anthony Meshnick is a NetSuite Account Executive for Business Solution Partners. He came from NetSuite direct and has years of experience working with service / software companies, manufacturers, distributors, and retailers in regards to NetSuite. With in depth knowledge, connections, and experience within the private equity space he has the expertise to help private equity firms grow their portfolio companies.

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