Evaluating Financial and Non-Financial Performance Measures Essay

This argumentative essay critically evaluates financial and non-financial performance measures used in business. It begins by defining financial measures like sales and profit, emphasizing their role in monetary performance evaluation and the use of ratio analysis. The essay acknowledges the limitations of solely relying on financial metrics, highlighting the importance of non-financial aspects such as employee productivity, customer satisfaction, and market share. It explores tools like PESTLE and SWOT analysis. The essay argues that the results of financial and non-financial measures should align, using examples to illustrate how they complement each other. It concludes by emphasizing the need for budgetary control when discrepancies arise, ensuring comprehensive performance assessment and strategic improvements. The essay also includes a discussion on the importance of employee productivity and its impact on overall performance.

An argumentative essay: Financial vs
Non-financial performance measures

TABLE OF CONTENTS
CRITICAL EVALUAION..............................................................................................................3
REFERENCES................................................................................................................................7

CRITICAL EVALUAION
In the present times, business units lay high level of emphasis on making evaluation of
business performance and aspects. By doing this, firm can get information about the area which
in turn requires improvements. For the development of strategic and competent framework
business unit must have information regarding each and every aspect. In this regard, report will
shed light on both financial and non-financial measures which in turn helps in making evaluation
of business performance prominently. According to the view of Farre-Mensa and Ljungqvist
(2016) financial measures such as sales, profit, turnover etc. are the main factors which in turn
help in making evaluation of monetary performance more effectually. The rationale behind this,
sales is one of the main indicators which in turn clearly present the extent to which customers
have positive attitude towards the products or services offered by firm. On the basis of such
aspect, by making comparison of current sales figure with the previous years, firm can make
estimation about the growth level. This aspect clearly shows that financial measure such as sales
help in making evaluation of business performance in the right direction.
However, on the critical note, Phillips and Phillips (2016) said that by assessing sales
trend company cannot make appropriate estimation regarding growth. Moreover, market trend
and competitors etc have high level of impact on business performance and growth level. Thus,
company can develop appropriate strategies and policies only when it has information regarding
both external factors. Karim and Arif-Uz-Zaman (2013) investigated and found that ratio
analysis is the most effectual technique which in turn helps in summarizing and evaluating the
business performance. Moreover, technique of ratio analysis gives quick indication about the
performance in terms of profitability, solvency, liquidity and efficiency aspect. Thus, by
undertaking such measure firm can assess profitability generated during the financial year over
expenses. However, it is to be critically evaluated by Chang and Tsai (2016), who said that
profitability ratios only entails the margin generated during the year but it does not consider non-
financial factors while assessing the reasons. Thus, non-financial factors such as employee
productivity are highly effectual which in turn helps in assessing the extent to which personnel
are doing well. Moreover, employee’s effort and their capabilities also have significant impact
on business performance. Thus, by making assessment of employee’s productivity level in

against to the benchmark and past years’ firm can assess the extent to which they are performing
well.
In this way, by evaluating all such aspects firm can assess the training requirements of
personnel. Along with this, liquidity ratios clearly present the extent to which firm is capable in
relation to meeting obligations. In addition to this, efficiency ratio also entails the extent to
which business unit has made optimum use of both fixed and current assets. In contrast to this,
Estampe and et.al., (2013) claimed that efficiency ratios such as fixed and total assets turnover
only entail the trend but it does not provide specific information about the reasons due to which
fluctuation occurs. Due to this, analysts are not in position to state clear reason behind the
decreasing asset turnover ratio etc. Thus, in their study, Zaman (2017) depicted that by along
with the financial measures, non-financial aspects are equally important. Moreover, PESTLE
analysis tool renders information about the tax policies, economic trends, customers’
preferences, technological advancement and the aspect of environment sustainability. Along with
this, by doing SWOT analysis firm can assess its own strengths and weaknesses. Besides this, it
also provides deeper insight about the opportunities and threats which are associated with the
company.
On the other side, Roberts, Neumann and Cauvin (2017) argued that technique of ratio
analysis has several limitations which in turn closely influence the significance of it. Moreover,
different companies undertake varied concepts while preparing financial statements. In this, it is
not possible for the company to assess its own position over the years and in against to the
competitors. Hence, company should also make assessment of non-monetary factors such as
customer base, market share etc while measuring performance. Moreover, market share helps
company in assessing the extent to which customers are satisfied with the offering of firm.
Abdel-Maksoud, Cheffi and Ghoudi (2016) mentioned in the study that by making focus on and
measuring employee productivity and profitability firm can make evaluation of business
performance and aspects. Moreover, increased productivity level shows that employees are
highly skilled as well as efficient and performing their activities more efficiently. Along with
this, by making assessment of customer base with the previous year’s firm can identify the level
of enhancement. In addition to this, by measuring the level of customer satisfaction and loyalty f

From assessment, it has been identified that result of financial and non-financial should
be in line with each other. As per my opinion, business unit should lay emphasis on both
monetary and non-monetary aspects while measuring business performance. The rationale
behind this, monetary evaluation provides organization with wide framework for decision
making. Moreover, profitability ratio clearly presents the reason behind increasing or decreasing
gross and net margin trend. Through this, firm would become able to assess whether there is a
requirement to exert control on cost. Further, balance sheet contains detail regarding the assets
and liabilities. Hence, by making evaluation of balance sheet business unit can easily identify the
reasons due to which liquidity of the firm decreased over the time frame. Besides this,
investment ratios also help company in assessing the extent to which they are offering higher
return to the investors.
On the other side, non-financial measures such as SWOT clearly entail strengths,
weaknesses, opportunities and threats of firm. Further, techniques such as porter five force and
PESTLE analysis renders information about the aspects of macro environment. On the basis of
such aspect, it can be presented that outcome of financial and non-financial measures should be
at the high level of agreement (Rezazadeh and et.al., 2017). For instance: It has been identified
from financial evaluation that sales revenue of firm increased significantly. In this, strengths of
the business unit must be sound customer base and effective quality management. Moreover,
company generates high sales revenue only when it has loyal and satisfied customer base.
Besides this, now customer prefers to purchase products or services from the retailer which in
turn lays high level of emphasis on quality aspect. Thus, both are the main reasons due to which
sales revenue of the company increases.
Along with this, when fixed and total assets turnover ratio increases then level of
employee productivity needs to be increased. Moreover, company can make effectual and
optimum use of assets when it has highly skilled and efficient workforce. In addition to this, high
level of direct as well as indirect expenses and tax is the main reason due to which profitability
aspect of the company decreases. For instance: Pestle analysis shows that tax rate increased then
firm can support this aspect with increasing obligation pertaining to the same and decreased
margin. By taking into account all such aspects it can be said that two measures such as financial
and non-financial should be at agreement.

Further, as per the views of Farre-Mensa and Ljungqvist (2016), in the case of
disagreement between the results of financial and non-financial measures then firm should make
focus on undertaking the tools of budgetary control. By undertaking such technique company
easily finds out deviations and thereby would become able to take strategic measure for
improvement. Moreover, under budgetary control or standard costing manager makes
comparison of actual performance with the budgeted figures. Hence, on the basis of such aspect,
by making evaluation of deviations and related causes firm can take appropriate action for
enhancement in the performance. For instance: By doing assessment, it has found that low sales
revenue has been generated by the firm as compared to the standards. In this regard, by
evaluating the market trend and taking feedbacks from customers firm can assess the reasons
behind decreasing trend and thereby would become able to take suitable measure for the
maximization of sales.
From the overall evaluation or assessment, it has been concluded that there must be a
level of agreement in the outcome of both financial and non-financial measures. Moreover,
performance of the company is affected from several aspects such as monetary strategies, market
trend, internal, micro and macro environmental factors. In accordance with such aspect, level of
agreement needs to be ensured between both financial and non-financial measures. Besides this,
it can be inferred that at the time of disagreement, business unit tends to make focus on
employing the tool of budgetary control. Thus, by undertakings such tool companies can
measure and evaluate performance in the best possible way.

REFERENCES
Books and Journals
Abdel-Maksoud, A., Cheffi, W. and Ghoudi, K., 2016. The mediating effect of shop-floor
involvement on relations between advanced management accounting practices and
operational non-financial performance indicators. The British Accounting Review. 48(2).
pp.169-184.
Chang, S.C. and Tsai, P.H., 2016. A hybrid financial performance evaluation model for wealth
management banks following the global financial crisis. Technological and Economic
Development of Economy. 22(1). pp.21-46.
Estampe, D. and et.al., 2013. A framework for analysing supply chain performance evaluation
models. International Journal of Production Economics. 142(2). pp.247-258.
Farre-Mensa, J. and Ljungqvist, A., 2016. Do measures of financial constraints measure financial
constraints?. The Review of Financial Studies. 29(2). pp.271-308.
Karim, A. and Arif-Uz-Zaman, K., 2013. A methodology for effective implementation of lean
strategies and its performance evaluation in manufacturing organizations. Business Process
Management Journal. 19(1). pp.169-196.
Phillips, J. J. and Phillips, P. P., 2016. Handbook of training evaluation and measurement
methods. Routledge.
Rezazadeh, S. and et.al., 2017. Evaluation of the Strategic Factors of the Management of
Protected Areas Using SWOT Analysis—Case Study: Bashgol Protected Area-Qazvin
Province. Open Journal of Ecology. 7(01). p.55.
Roberts, M. L., Neumann, B. R. and Cauvin, E., 2017. Individual Performance Measures: Effects
of Experience on Preference for Financial or Non-Financial Measures. In Advances in
Management Accounting (pp. 191-221). Emerald Publishing Limited.

Zaman, M., 2017. The role of financial and non-financial evaluation measures in the process of
management control over foreign subsidiaries–empirical evidence in Slovene multinational
companies. Management: journal of contemporary management issues. 9(2). pp.53-73.