Question

Mention the Degree of usefulness of financial and non financial measures (3 points each) ?

Answer 1

Financial measures of performance are quantitative measures and its uses are as follows:

1. Comparison: Financial metrics or measures can be used for comparison of a companies performance with its peer group of companies as well as the industry as a whole. Furthermore, the companies current performance can be used for comparison with its past achievements/failures.

2. Target setting: Financial targets or Key performance indicators (KPI) are visible and can be quantified for identifying achievement. Financial measures provide opportunity to goals such a sales targets, profit margins, etc.

3. Efficient to use: here, efficiency is discussed from the perspective of time. Companies are required to regularly (quarterly) post their results (financial numbers) for use by the public. Since, the financial data collation is a regulatory requirement, it's analysis is more efficient since, it does not load the organisational individuals with additional responsibilities and they can perform their primary responsibilities efficiently.

Non-financial measures of performance are qualitative measures and its uses are as follows:

1. Long-term organisational growth strategy: Non-financial metrics contribute towards the setting and achievement of the long term goals of a company such as enhancing customer experience/satisfaction, etc.

2. Understand the market: Measures such as customer experience, customer satisfaction, brand recall, etc. are non-financial measures which helps the company to understand and continuously monitor its position in the market, at large and can map out steps to achieve the desired position.

3. Human Capital: In sectors where an organisational value is derived from its employees, that is, the human capital, in such a case, non-financial metrics prove more fruitful than the financial ones since human/intellectual capital cannot be quantified.