This KPI assesses the level of interest that you are paying and expresses it as a percentage against your company turnover.
The amount of interest that a company is paying on its borrowings is always of primary concern, especially when interest rates are increasing. However, nearly all businesses borrow money at some time so the question must be how much interest is your company paying and is it too much?
It is generally accepted that the level of interest that you are paying should be less than 1% of your company turnover.
Example:
A) Annual Interest payments = R101,665 B) Company Turnover = R14,523,661 C) Interest % = 0.7% (A ÷ B X 100)
Discussion:
If this KPI is higher in your business then you may wish to arrange a meeting with your Bank manager or your other providers of money to renegotiate your terms.