Question

A) Provide a short general report to managers and stakeholders demonstrating how the financial and non-financial performance of your company and business idea will be measured. Consider your core values (social, environmental and financial).

B) list one performance measure - Financial

and 3 performance measure non-financial that is linked to SDGs.

Answer 1

Inadequacies in financial performance measures have led to innovations ranging from non-financial indicators of “intangible assets” and “intellectual capital” to “balanced scorecards” of integrated financial and non-financial measures. This article discusses the advantages and disadvantages of non-financial performance measures and offers suggestions for implementation. Non-financial measures offer four clear advantages over measurement systems based on financial data. First of these is a closer link to long-term organizational strategies. Financial evaluation systems generally focus on annual or short-term performance against accounting yardsticks. They do not deal with progress relative to customer requirements or competitors, nor other non-financial objectives that may be important in achieving profitability, competitive strength and longer-term strategic goals. For example, new product development or expanding organizational capabilities may be important strategic goals, but may hinder short-term accounting performance. By supplementing accounting measures with non-financial data about strategic performance and implementation of strategic plans, companies can communicate objectives and provide incentives for managers to address long-term strategy.

Second, critics of traditional measures argue that drivers of success in many industries are “intangible assets” such as intellectual capital and customer loyalty, rather than the “hard assets” allowed on to balance sheets. Although it is difficult to quantify intangible assets in financial terms, non-financial data can provide indirect, quantitative indicators of a firm’s intangible assets.

One study examined the ability of non-financial indicators of “intangible assets” to explain differences in US companies’ stock market values. It found that measures related to innovation, management capability, employee relations, quality and brand value explained a significant proportion of a company’s value, even allowing for accounting assets and liabilities. By excluding these intangible assets, financially oriented measurement can encourage managers to make poor, even harmful, decisions.

Third, non-financial measures can be better indicators of future financial performance. Even when the ultimate goal is maximizing financial performance, current financial measures may not capture long-term benefits from decisions made now. Consider, for example, investments in research and development or customer satisfaction programs. Under U.S. accounting rules, research and development expenditures and marketing costs must be charged for in the period they are incurred, so reducing profits. But successful research improves future profits if it can be brought to market.

Similarly, investments in customer satisfaction can improve subsequent economic performance by increasing revenues and loyalty of existing customers, attracting new customers and reducing transaction costs. Non-financial data can provide the missing link between these beneficial activities and financial results by providing forward-looking information on accounting or stock performance. For example, interim research results or customer indices may offer an indication of future cash flows that would not be captured otherwise.

Five measures of financial efficiency are the asset turnover ratio, operating expense ratio, depreciation expense ratio, interest expense ratio and net farm income from operations ratio. The asset turnover ratio measures how efficiently farm assets are being used to generate revenue.

Financial Performance Measures to Monitor

1. Gross Profit Margin. Gross profit margin is a profitability ratio that measures what percentage of revenue is left after subtracting the cost of goods sold. ...
2. Net Profit Margin. ...
3. Working Capital. ...
4. Current Ratio. ...
5. Quick Ratio. ...
6. Leverage. ...
7. Debt-to-Equity Ratio. ...
8. Inventory Turnover.

Common financial metrics include earnings, profit margin, average order value, and return on assets. Measures such as customer satisfaction, market share, category ownership, and new product adoption rate fall into the non-financial metrics.