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Knowing Your Numbers: Using Financial Metrics to Make a Strong Case for Investors

March 25, 2023 / Blog

Investors play a critical role in the growth and development of businesses. As an entrepreneur or business owner seeking investment, one of your most critical responsibilities is knowing your numbers and understanding the financial metrics that matter to investors.

Financial metrics are essential for demonstrating the potential success of your business. By understanding and utilizing these metrics, you can make a strong case for investors to support your venture.

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Let’s discuss the key financial metrics you should know and how to use them to build a compelling investment case.

There are several financial metrics investors will want to know before investing in your business:

  • Revenue: The total amount of money your business generates in sales over a specific period.
  • Gross Profit Margin: The percentage of revenue after deducting all expenses, including taxes and interest.
  • Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): The amount of money your business generates before factoring in interest, taxes, depreciation, and amortization.
  • Return on Investment (ROI): The percentage of return on investment in your business.
  • Cash Flow: The money your business generates or uses in its operations.
  • Customer Acquisition Cost (CAC): The cost of acquiring a new customer.
  • Lifetime Value (LTV): The total amount of revenue a customer will generate over their lifetime.
  • Burn Rate: The rate at which a company is spending its cash reserves or funding.

Building a Strong Investment Case Using Financial Metrics

Here are factors to consider when using financial metrics for building a strong investment case:

Understanding the investor’s perspective

Understanding what investors are looking for requires effective use of financial metrics.

Investors look for businesses with high growth potential, a clear path to profitability, and a competitive edge in the market. Therefore, when selecting financial metrics to include in an investment pitch, choosing the ones that align with these criteria is critical.

Since investors are often pressed with numerous investment opportunities, it can be challenging to differentiate one business from another. Thus, selecting metrics that showcase your business’s performance can help you stand out in a crowded investment market.

You can make a stronger investment case using financial metrics that demonstrate how your business aligns with the potential investors’ perspectives.

Choosing metrics that align with business goals

The business metrics you will showcase should align with your goals.

If your goal is to increase revenue, revenue growth rates and market share may be most relevant. If your goal is to increase profitability, profit margin or return on investment may be more appropriate.

The key is choosing metrics that demonstrate how your business is performing in critical areas of success. This doesn’t only help investors understand your business but also shows you have a clear understanding of what matters most for your business growth.

Providing context and analysis

When you provide context and analysis, you help investors understand the significance of the metrics you are presenting, and how they relate to your business goals.

Providing context and analysis is vital as investors may not be familiar with your business or industry. Therefore, they might not immediately understand the relevance of certain financial metrics.

To provide context, explain how you calculated each metric. For example, if you are presenting revenue growth rates, explain how the growth rate was calculated, which revenue streams were included, and any factors that may have influenced the growth rate.

In addition to explaining how the metrics were calculated, you should discuss any assumptions made. For example, if you are presenting a metric like a customer’s lifetime value, you may have assumptions about customer retention rates or the average purchase frequency. Discussing assumptions can help investors understand the basis for your calculations and any potential limitations.

Make a strong case for investment and demonstrate the potential success of your business to investors by following the strategic approaches of using financial metrics outlined in this blog.

SlideGenius is a leading go-to presentation design agency among many businesses, including Fortune 500 companies. We specialize in building well-designed and engaging pitch decks investors love and approve of.

Make a strong investment case and increase your chances of success by partnering with SlideGenius.

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