Syllabus F. Performance Measurement F2. Application

F2a/F4a. Non financial measures 6 / 14

Syllabus F2a/F4a)

F2a) Discuss and calculate measures of financial performance (profitability, liquidity, activity and gearing) and non financial measures

F4a) Discuss the importance of non-financial performance measures

The importance of non-financial performance measures

Profit based measures have the following problems:

  1. the subjectivity of profit

  2. the scope for manipulation of profit

  3. the problem of short-termism

A non financial performance indicator measures the performance of organisations not using money/profit measures and can provide managers with incentives to improve long-term financial performance.

For example, if customer satisfaction is low, this could imply that sales demand will fall in the future and this will have a negative effect on profits.

Examples of non financial indicators include defects/month and productivity/hour