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Financial measures - Essay Example

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Financial measures

Financial measures are the traditional ones for evaluating operating performance, benchmarking competitors, and comparing industry results. To determine whether a company is profitable, profitability ratios like return on equity, return on assets and net profit margin may be used. Other companies or competitors normally use the same ratios also so that comparison and benchmarking are possible among companies (Meigs, Meigs & Meigs, 1995). However, it does not mean that non-financial measures are not useful since normally they are the underlying explanations of the difference in performance measures. To illustrate in the case of two similar companies in the industry, it is possible that one has more revenues or higher profitability than the other does. What could explain the difference between the two companies may be in the more loyal and active sales force of one company over the other. Upon investigation, it can be found that personal objectives of the workforce or people of the more profitable company are tied with the corporate financial objectives. The human resource contribution, which is basically non-financial, is normally not emphasized in the financial statements but they could constitute the competitive advantage on one company over the other company. After knowing that a company has more loyal and hard working sales force, the same company could sustain profitability or further the advantage and that makes the non-financial measure very useful. Of course they are other non-financial measures such as better customer service, better attendance of employees in meeting, zero absences in important activities, timely submissions of reports by concerned employees or departments (Streetdirectory, 2010).
The advantage and disadvantage of each measure can be drawn from the example given. Financial measures are readily measurable and are closer to measuring attainment of measurable financial objectives. It is easier to ...Show more

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This paper also provides examples of non-financial measures and discusses whether they could give a better a better picture of the firm and compare them to…
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Financial measures essay example
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