Limitations of financial data in assessing business performance
- Financial ratios tend to be historic
- Financial ratios focus on measures that are more important to shareholders than business managers
- Financial data is not the best way of understanding how the business is performing in terms of key competitive performance
Key non-financial measures of performance
Operations
- Efficiency (unit costs)
- Labour productivity
- Capacity utilisation
- Break-even output
- Quality (reject rate)
- Quality (lead time)
HRM
- Labour turnover
- Labour productivity
- Unit labour costs
- Absenteeism rate
- Revenue per employee
- Staff retention rate
- Job satisfaction
Marketing
- Market share
- Sales per employee
- Sales growth (volume)
- Customer retention rate
- Brand reputation and awareness
Other relevant non-financial measures
- Environmental performance
- Compliance regulation
- Health & safety record
- Social media reach
Making connections between financial and non-financial measures
- Financial measures and non-financial measures are closely linked.
- If you want to improve your operating profit margins, taking non-financial measures to improve employee satisfaction could aid in achieving this goal
- Improved product quality may cost no extra money, but could allow the goods to be sold at a higher price and more quickly.