This technical paper discusses the importance of considering non-financial information in addition to financial information for decision making. Two models are presented: [1] The Profit Tree model identifies non-financial "volume drivers" behind financial statement line items. [2] The Balanced Scorecard model captures additional value factors like customer satisfaction, internal processes, and learning/growth. Adopting these models can help companies gain competitive advantages and make better informed decisions. The paper also addresses limitations of non-financial data and how organizations can effectively implement and report on relevant non-financial metrics.
๏ง Financial Accounting and Management accounting are the two branches of accounting.
๏ง Financial accounting stresses on giving true and a fair view of the financial position of the company to various parties.
๏ง On the contrary, management accounting aims at providing both qualitative and quantitative information to the managers, so as to assist them in decision making and thus maximizing the profit.
Financial Accounting is the branch of accounting which keeps track of all the financial information of the entity. Management Accounting is that branch of accounting which records and reports both the financial and nonfinancial information of an entity.
Managerial oversight rather than inadequate finance has been ascribed as the necessitating fundamental to business failure in less-developed countries. Finance plays a crucial role in the establishment, growth and sustainability of business. However, it is delicate; its inadequacy or excess is as dangerous asineffective management. This paper examines the importance of finance function, the imperativeness of financial strategies and the special role of finance manager in business sustainability. In addition, a reflection is made of the financial management practicesof businesses in African countries, and recommendations made for changes required for their sustainability.
Management Accounting For Banking DiplomaMilton Kumar
ย
This paper will be helpful for professional bankers who intend to get preparation for Banking Diploma (Part-2), DAIBB.
Very precise note for broad questions.
๏ง Financial Accounting and Management accounting are the two branches of accounting.
๏ง Financial accounting stresses on giving true and a fair view of the financial position of the company to various parties.
๏ง On the contrary, management accounting aims at providing both qualitative and quantitative information to the managers, so as to assist them in decision making and thus maximizing the profit.
Financial Accounting is the branch of accounting which keeps track of all the financial information of the entity. Management Accounting is that branch of accounting which records and reports both the financial and nonfinancial information of an entity.
Managerial oversight rather than inadequate finance has been ascribed as the necessitating fundamental to business failure in less-developed countries. Finance plays a crucial role in the establishment, growth and sustainability of business. However, it is delicate; its inadequacy or excess is as dangerous asineffective management. This paper examines the importance of finance function, the imperativeness of financial strategies and the special role of finance manager in business sustainability. In addition, a reflection is made of the financial management practicesof businesses in African countries, and recommendations made for changes required for their sustainability.
Management Accounting For Banking DiplomaMilton Kumar
ย
This paper will be helpful for professional bankers who intend to get preparation for Banking Diploma (Part-2), DAIBB.
Very precise note for broad questions.
The financial metrics and their influence on behavioursOlimjon Suleymanov
ย
Performance measures have been known to affect behaviour. If employees know that they are being judged according to how their performance meets certain standards, they will strive to uphold those
standards in order to be rewarded. Ideally, performance measures should be designed to reward positive behaviour that maximises the corporate goal. However, in the modern business climate, shareholder value maximisation has become a central tenet of the way that most companies are run, usually at the expense of other important criteria. This paper will aim to explore the negative side-effects of an over-fixation with modern performance metrics on employee behaviour.
Earnings Management, the Influence of Size, Indebtedness and Performance The ...ijtsrd
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This study attempts to contribute to the research literature in the field of management of earnings results and how it is put into practice by Moroccan listed companies. The main question that the paper attempted to investigate is whether these companies managers use accounting results management in an opportunistic way. The study was conducted on a sample of 54 companies on the Casablanca Stock Exchange between 2014 and 2016.The findings indicate that the guarantee of a stock market valuation to influence investors decisions is not at the heart of results management in Moroccan listed companies. Nevertheless, the importance of the size factor and the satisfaction of the conditions imposed by the creditors to justify the level of the discretionary behavior of the managers in terms of accounting and financial information are noteworthy. Baghar Nezha "Earnings Management, the Influence of Size, Indebtedness and Performance: The Case of Moroccan Listed Companies" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-2 , February 2019, URL: https://www.ijtsrd.com/papers/ijtsrd21387.pdf
Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/21387/earnings-management-the-influence-of-size-indebtedness-and-performance-the-case-of-moroccan-listed-companies/baghar-nezha
Key traits of new age Financial Controller. Evolution from just being an accountant to a true Business Leader. Step by step guide to ensure the journey towards being a valuable Financial Controller.
The financial metrics and their influence on behavioursOlimjon Suleymanov
ย
Performance measures have been known to affect behaviour. If employees know that they are being judged according to how their performance meets certain standards, they will strive to uphold those
standards in order to be rewarded. Ideally, performance measures should be designed to reward positive behaviour that maximises the corporate goal. However, in the modern business climate, shareholder value maximisation has become a central tenet of the way that most companies are run, usually at the expense of other important criteria. This paper will aim to explore the negative side-effects of an over-fixation with modern performance metrics on employee behaviour.
Earnings Management, the Influence of Size, Indebtedness and Performance The ...ijtsrd
ย
This study attempts to contribute to the research literature in the field of management of earnings results and how it is put into practice by Moroccan listed companies. The main question that the paper attempted to investigate is whether these companies managers use accounting results management in an opportunistic way. The study was conducted on a sample of 54 companies on the Casablanca Stock Exchange between 2014 and 2016.The findings indicate that the guarantee of a stock market valuation to influence investors decisions is not at the heart of results management in Moroccan listed companies. Nevertheless, the importance of the size factor and the satisfaction of the conditions imposed by the creditors to justify the level of the discretionary behavior of the managers in terms of accounting and financial information are noteworthy. Baghar Nezha "Earnings Management, the Influence of Size, Indebtedness and Performance: The Case of Moroccan Listed Companies" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-2 , February 2019, URL: https://www.ijtsrd.com/papers/ijtsrd21387.pdf
Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/21387/earnings-management-the-influence-of-size-indebtedness-and-performance-the-case-of-moroccan-listed-companies/baghar-nezha
Key traits of new age Financial Controller. Evolution from just being an accountant to a true Business Leader. Step by step guide to ensure the journey towards being a valuable Financial Controller.
11/2/2019 Print
https://content.ashford.edu/print/Schneider.4937.17.1?sections=navpoint-7,navpoint-8,navpoint-9,navpoint-10,navpoint-11,navpoint-12,navpoint-13,nโฆ 1/49
LearningObjectives
After studying Chapter 1, you will be able to:
Distinguish between ๏ฟฝinancial accounting and managerial accounting.
Recognize the primary roles and ethical responsibilities of the management accountant.
De๏ฟฝine, distinguish, and illustrate key cost concepts.
Understand the differences in cost ๏ฟฝlows among service, merchandising, and
manufacturing enterprises.
Distinguish between the behavior of variable and ๏ฟฝixed costs and formulate cost
functions.
Understand cost terms relating to planning and control.
1 Managerial Accounting and Cost Concepts
DragonImages/iStock/Thinkstock
11/2/2019 Print
https://content.ashford.edu/print/Schneider.4937.17.1?sections=navpoint-7,navpoint-8,navpoint-9,navpoint-10,navpoint-11,navpoint-12,navpoint-13,nโฆ 2/49
Introduce the concept of contribution margin and its variations.
TheControllerโsWorkDay:WhereDidtheTimeGo?
Itโs early October. Mary Rosen, Controller of Herschel Software Products, has just arrived at her
of๏ฟฝice at about 7:30 a.m. She scans her email messages, checks her electronic calendar, and looks
through her in-basket. She says, โWow, another โnormalโ day!โ She wonders if sheโll make her
tennis date with her husband at 6 p.m. Her calendar shows:
9:00 Meet with division head of Customer Support to discuss next yearโs budget numbers.
Review preliminary budget numbers before meeting.
10:00 Meet with accounting systems analysts to discuss status of a project to improve the ๏ฟฝirmโs
monthly management โplan versus actualโ reporting system.
11:30 Hold a quick session with Marketing Vice-President, Gary Martin, to discuss pricing
negotiations with new customer.
12:15 Have working lunch with corporate attorney to discuss customer contract wording for a
new product being introduced early next year.
2:00 With budget manager, review Septemberโs actual results and budget comparisons and
identify problem areas. Also, review third quarter results before her presentation to the
President at Fridayโs staff meeting.
4:00 Review a special cost-volume-pro๏ฟฝit study of Herschel Software Products, relative to the
๏ฟฝirmโs strategic planโs pro๏ฟฝitability goals.
Mary also knows that she needs to:
Respond to four email questions about product costs and operating expenses.
Talk to Steve Simcha, New Product Development Vice-President, about a serious cost-
overrun problem with a new product project.
Prepare a presentation on cash ๏ฟฝlows for the ๏ฟฝirmโs strategic planning meeting next
month.
Write a memo supporting the spending of $100,000 by the Marketing Vice-President on
media contracts.
Every meeting, discussion, and decision that Mary has today, and every day, uses accounting
information. She must generate relevant data in the right form and at the right time. She and her
fellow managers must understand cost behavior, cost/b ...
Acct 504 mart perfect education acct504mart.commiddle12
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Case Study 1 (Part A)Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions: Compare and contrast sole proprietorships, partnerships, and corporations.
ACCT 504 MART Perfect Education/acct504mart.comsarathkum12211
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Case Study 1 (Part A)Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions:June2Gordon received $55,000 cash and issued common stock to the stockholders. Current assets
The Changing Role Of The Management Accountant.pdfPriyaPathak65
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The management accountant of the organization has to evolve to be able to step up to the new roles & responsibilities with the help of the latest technologies like big data & artificial intelligence in finance.
Managerial accounting is an activity that provides financial and n.docxinfantsuk
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Managerial accounting is an activity that provides financial and nonfinancial information to an organization's managers and other internal decision makers. This section explains the purpose of managerial accounting (also called management accounting) and compares it with financial accounting. The main purpose of the financial accounting system is to prepare general-purpose financial statements. That information is incomplete for internal decision makers who manage organizations.
Purpose of Managerial Accounting
C1 Explain the purpose and nature of, and the role of ethics in, managerial accounting.
The purpose of both managerial accounting and financial accounting is providing useful information to decision makers. They do this by collecting, managing, and reporting information in demand by their users. Both areas of accounting also share the common practice of reporting monetary information, although managerial accounting usually includes the reporting of more nonmonetary information. They even report some of the same information. For instance, a company's financial statements contain information useful for both its managers (insiders) and other persons interested in the company (outsiders).
Point: Nonfinancial information, also called nonmonetary information, includes customer and employee satisfaction data, the percentage of on-time deliveries, and product defect rates.
The remainder of this book looks carefully at managerial accounting information, how to gather it, and how managers use it. We consider the concepts and procedures used to determine the costs of products and services as well as topics such as budgeting, break-even analysis, product costing, profit planning, and cost analysis. Information about the costs of products and services is important for many decisions that managers make. These decisions include predicting the future costs of a product or service. Predicted costs are used in product pricing, profitability analysis, and in deciding whether to make or buy a product or component. More generally, much of managerial accounting involves gathering information about costs for planning and control decisions.
Point: Costs are important to managers because they impact both the financial position and profitability of a business. Managerial accounting assists in analysis, planning, and control of costs.
Planning is the process of setting goals and making plans to achieve them. Companies formulate long-term strategic plans that usually span a 5- to 10-year horizon and then refine them with medium-term and short-term plans. Strategic plans usually set a firm's long-term direction by developing a road map based on opportunities such as new products, new markets, and capital investments. A strategic plan's goals and objectives are broadly defined given its long-term orientation. Medium- and short-term plans are more operational in nature. They translate the strategic plan into actions. These plans are more concrete and consist of bett ...
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1.A proxy fight occurs when: the board of directors disagree on the members of the management team. For this week's checkpoint we had to look up three job postings in the field of accounting. I'm glad that I got this opportunity because it actually opened my eyes and expanded my knowledge in the accounting field. The three job positions are listed below. The first job title
Organisations spend heavily on technology, people skills and consulting to understand billions of bits of data, but they still lack clear visibility and insight.....
What Are Financial Statements?
Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. For-profit primary financial statements include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar but different set of financial statements.
This slideshow by BQu, provides the basic understanding of SEO. Content includes: Importance of SEO, SEO functionality, The role of SEO Today, Changes and Challenges, and Measuring SEO
Play it safe or Play it Unique on Social Mediabquteam
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The following slideshow is themed on how social media marketing works while exemplifying three well-known brands such as: Starbucks, HP, and Softonic and providing tips on how to be unique in social media
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
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Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
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Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
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Accpac to QuickBooks Conversion Navigating the Transition with Online Account...PaulBryant58
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This article provides a comprehensive guide on how to
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As a business owner in Delaware, staying on top of your tax obligations is paramount, especially with the annual deadline for Delaware Franchise Tax looming on March 1. One such obligation is the annual Delaware Franchise Tax, which serves as a crucial requirement for maintaining your companyโs legal standing within the state. While the prospect of handling tax matters may seem daunting, rest assured that the process can be straightforward with the right guidance. In this comprehensive guide, weโll walk you through the steps of filing your Delaware Franchise Tax and provide insights to help you navigate the process effectively.
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
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A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
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Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
Remote sensing and monitoring are changing the mining industry for the better. These are providing innovative solutions to long-standing challenges. Those related to exploration, extraction, and overall environmental management by mining technology companies Odisha. These technologies make use of satellite imaging, aerial photography and sensors to collect data that might be inaccessible or from hazardous locations. With the use of this technology, mining operations are becoming increasingly efficient. Let us gain more insight into the key aspects associated with remote sensing and monitoring when it comes to mining.
Taurus Zodiac Sign_ Personality Traits and Sign Dates.pptxmy Pandit
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Explore the world of the Taurus zodiac sign. Learn about their stability, determination, and appreciation for beauty. Discover how Taureans' grounded nature and hardworking mindset define their unique personality.
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๐๐ ๐๐จ๐ฆ๐ฌ (๐๐ ๐๐จ๐ฆ๐ฆ๐ฎ๐ง๐ข๐๐๐ญ๐ข๐จ๐ง๐ฌ) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
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1. Technical Paper
The importance of non-financial information in decision making and
drive for narrative reporting
By: Romila Dominique
Date: Nov 2009
Abstract
This technical paper has described the importance of non financial information in todayโsโ fast moving
rapidly changing world. Two important models have been presented here. The first Profit tree model shows
how to extract the hidden non financial elements (volume drivers) from the financial statements and the
second Balance scorecard model shows how to capture the other value driven factors such as customer
satisfaction, internal business processes and learning and growth.
If these models are adopted and used by companies, all companies can gain their market in this competitive
world.
-1-
2. Main Heading
Contents
Executive Summary ............................................................................................................................................................. 3
1. Introduction ................................................................................................................................................................. 4
2. Defining Non financial Information ........................................................................................................................ 4
3. Benefits of Non financial Information .................................................................................................................... 5
4. Limitations of Non financial information .............................................................................................................. 6
5. Proposed Management Tools ....................................................................................................................................7
6. Non financial information in Reporting ................................................................................................................. 9
7. Conclusion.................................................................................................................................................................. 10
Revenue ................................................................................................................................................................................... I
Potential Expenses ................................................................................................................................................................. I
Bibliography .......................................................................................................................................................................... V
Figures
Figure 1.1: Report Structure................................................................................................................................................ 4
Figure 5.1: A Balance Scorecard Model ............................................................................................................................ 8
Figure 6.1: Sustainability at work ...................................................................................................................................... 9
Appendices
Appendix 1 - The Profit Tree Model .................................................................................................................................... I
Appendix 2 - Norton and Kaplan Balance Score Card Objectives and Measures................................................... IV
-2-
3. Executive Summary
Non financial information has drawn its importance these days due to rapidly increasing competition,
dynamic market changes and changing customer needs and wants. Depending only on the financial
information for decision making wonโt give the competitive edge to companies, other aspects such as
volume drivers, quality, customer, employee satisfaction also be included in decision making.
First of all the perception that financial statements have only the financial records should change, the
companies should know that there are non financial factors attached to each and every financial record. And
in this case the non financial factors are considered to be the Volume drivers. It is the responsibility of
Management Accountants to identify the crucial volume drivers associated to each costs / income. In this
regard a Profit tree model is presented here in order to identify the volume drivers.
The other non financial information that a company should focus is quality, employee customer
satisfaction, corporate social responsibility, environmental climate change, risks, and opportunities. A
Balance scorecard model is presented in this regard.
The ICGN (International Corporate Governance Network) is now encouraging the non financial business
reporting.
Non-financial business information when combined with financial information can provide valuable insight
into the overall quality of management, a critical variable in the appraisal of the firmโs financial prospects.
-3-
4. 1. Introduction
This topic has gained an importance due to the dynamic and highly competitive environment that we are
living today. Information material to investor decision making increasingly diverse and active .Long term
success in managing a business in todayโs complicated economic, environmental and social landscape more
and more is depending on factors not considered in financial statements and in some instance thought to be
outside the corporationโs sphere of concern.
Investors are concerned in assessing a companyโs present and future valuation and the competency to
understand its opportunities and risks. Today uncertainties and unexpected climate changes have drawn
investorโs attention. They are very active in investing in many corporate responsible projects such as
(Carbon Trading Scheme), venture capital investments in climate friendly technologies. Likewise a company
should also focus on intellectual capital, intangible asset, human capital, reputation, capacity to innovative
brands, alliances and other intangible assets that are vital to value creation in the contemporary knowledge
and information based economy. These and some other issues such as supply chain management, human
resources, and environmental management systems represent growing class of variables that drive
performance and valuation. They can have an impact directly on short and long term value creation and
destruction. They may have an impact indirectly through effects such as reputation loss or improvement
and customer satisfaction and loyalty.
Therefore in order to take crucial corporate or investor expectations decisions focusing only on the financial
information analysis, environmental friendly projects, and technologies are not enough, non financial
information also should be taken into consideration.
The issue tree provided below shows the structure of the report;
Figure 1.1: Report Structure
2. Defining Non financial Information
Any monetary value attached figures are considered to be financial information (can be a dollar, rupee,
pound or euro). In general financial information consists of profits margin, earnings, accounting returns, and
all financial information represented in the financial statements.
-4-
5. Analysing only the figures in the financial statements donโt give the cutting edge to the companies to be
competitive and to become a market player. The company should also focus on the volume drivers that
could be both cost / revenue drivers and understand the reason for any profits generated and expenses
incurred. The volume driverโs such as number of employees, number of orders, number of hours, number of
reports produced, numbers of training organised etc. This is considered to be the non financial information
which in the end will help the organisation and management to figure out and understand the story behind
each profits and costs and make any decisions effectively.
It is managementโs responsibility to identify the crucial non financial information which adds value to their
company as well as to the investors / stake holders. Since different stakeholders have different levels of
interests and power and their expectations also differ accordingly. The selection of crucial non financial
information has to be vital and should not be conceptually misleading.
In addition to the volume drivers the other perspective of non financial information are environmental risks
such as climate change, matters affecting employees, customers, suppliers, host communities, intellectual
property ,intangible assets like brand name which are crucial to success, ethics, governess arrangements,
innovation and quality. This non financial information may depend on the company strategy, industry or
sector specific.
3. Benefits of Non financial Information
As mentioned in section 4, companies have to be aware about the volume drivers behind every income /
expense incurred. Since the management is responsible when investors ask questions on the income /
expense incurred.
Considering volume drivers will help the management when itโs provided with some series of proposals. By
not only depending on the results generated through NPV, Payback period, and IRR identifying the correct
value added volume drivers will make them to take decisions effectively. In addition to this by
understanding the volume drivers the management can also utilise this non financial information for future
budgeting, and variance analysis.
Non financial information is more long termed focus than financial information. Financial measures mostly
focus on annual and short term performance of accounting indicators. They do not deal with quality,
reputation, brand name, customer satisfaction (customer loyalty, customer complaints), competitorโs
movements and human issues. But for long term sustainability in a competitive market and to achieve
organisational strategic goals and mission considering the non financial information in decision making is
crucial.
The non financial data helps to evaluate internal performance and measure the employees and customer
satisfaction. In real life non financial information has a direct impact on a companyโs future expected
financial targets, which have been explained below in simple terms.
When employees in the organisation are satisfied, they will be motivated and encouraged to work so that
they will produce good deliverables on time for their clients or customers, therefore the firm could gain
satisfied customers who are willing to place more orders to the firm in future as well. This will eventually
have an impact on profits / gross margin in future and will help the company to perform well in the market
and boom Companyโs financial position.
Then it is also argued that drivers of success in many industries are intangible asset, such as intellectual
capital and customer loyalty rather than the hard assets that are shown in the financial statements. It is
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6. difficult to quantify intangible assets in financial terms but the non financial data could provide indirect
quantitative indicators of a firmโs intangible assets data.
Finally, the management must know value added performance driven non financial information and the
level of noise in the measures. Noise refers to the changes in the performance measures that are exposed to
other outside PEST factors and not within the control of the organisation or management. A manager must
be aware of the level of success based on the level of noise and external environmental factors. They should
also be aware of how much success is due to their actions otherwise they will not have any indicators that
they need to optimize their effect on performance. Generally many non financial measures are less
susceptible to external noise than accounting measures; their use may improve managerโs performance by
providing more accurate evaluation of their actions. This will reduce the risk imposed on managers when
determining pay.
4. Limitations of Non financial information
Even though non financial information has its own advantages itโs also has its own drawbacks and
limitations.
The first limitation of non financial information is time and cost.
The management spends more time in identifying the crucial value added non financial information. Value
of time is more important in these days, since all players are in an active process of competing other players.
Some time the management is left in the middle of an ocean in order to spot the suitable value driven non
financial measure for their company. For example if they consider focusing on customer satisfaction what is
to consider in customer satisfaction measure, whether itโs number of customer complaints? Customer
loyalty level? Number of unique customers introduced for the company? Likewise covering each key non
financial measures and identifying the correct ones will consume more valued time of the company and will
push the management to focus on this measurement process too much to degenerate into exercises which
add very little amount of value to reach future strategic goals. This will make the employees too to focus on
reporting, presenting and discussing countless of quality indicators and reducing the time spend on other
management activities and time spend on serving customers.
The second limitation of non financial measure is that unlike financial measure which has basic formulas
and financial equations to calculate and compare non financial measure has no proper or common
denominator. Some targets are in percentages and some are in quantities and some are measured in
subjective ways.
Some companies try to measure performance using weighted average of the measures, some try to measure
in terms of strategic importance (say do not agree to strongly agree), others assign subjective target for non
financial measures 40% dissatisfied customers among 100 served, 60% employee satisfaction, 30% on
market growth, the end result generated from the subjective targets and measures cannot be used for
comparison purposes because a common denominator is not used for calculation which can lead the
management to make wrong decisions.
The third drawback is the lack of casual links between measures. This means, companies invest in customer
survey programs in order to measure the level of customer satisfaction but in real the value driver could be
customer loyalty and not customer satisfaction level. Improper measures like this will lead the management
to focus attention on wrong objectives and improvements cannot be linked to future outcomes.
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7. For example Xerox spent millions of dollars on customer surveys in order to measure customer satisfaction
and translate the end results into improved financial performance. Later on they found out no such links
between the measures. As a result Xerox shifted to measure customer loyalty which was found to be a
leading indicator for financial performance.
The fourth limitation of non financial measure is the lack of statistical reliability whether the measure will
actually represents what it supposed to represent, rather than random measurement error. Say a customer
satisfaction survey can consist of few questions and few respondents. Some respondents wonโt have time to
fill these surveys also they will simply ignore them. When it comes for employee surveys it is very difficult
to capture real feelings and emotions of employees with certain amount of questions. At the end final
results of these measures will generally represent poor statistical reliability and will put the management in
a difficult position for effective decision making for comparison and for comparison purposes among
departments and other market players.
The final limitation is, even though the non financial measures miss to capture many dimensions of
organisational performance, implementing evaluation techniques with many measure and indications will
cause to measurement disintegration. This happens when an excess of measures which weakens the effect
of the measurement and decision making process.
Providing only the advantages and listing down the disadvantages wonโt help any company to improve or
manage their business. Solutions and ideas have to be provided in terms of how to overcome the limitations
of non financial information and how to get the maximum use of the information.
Therefore, the debate is how to use and implement the non financial measures effectively and get the
maximum benefit out of it by overcoming its drawbacks is discussed above.
5. Proposed Management Tools
Before implementing any tools, first the management should understand their stakeholders and identify
which non financial measure or indicator adds value to them and maximises their wealth, because
management should not indulge time in non value adding activities, and investments.
The value of non financial information can be extracted by using these tools.
The first management technique is the Profit tree analysis which helps to extract the non financial
elements (in this case the volume drivers) from the financial statements and the other tool is the Balance
scorecard which captures the most important elements of business such as customers, internal business,
and process, learning and growth categories.
The Profit tree model is presented in Appendix 1 considered some potential revenue and expenses and
associated volume drivers attached to the revenue and costs. This model can be adopted by any company
but should be modified according to their financial statements.
By identifying the volume drivers the management can clearly identify the crucial drivers and make any
further decisions. This tool also could be used for budgeting and variance analysis. This model will be useful
for any organisation to drill down the profit and loss account and figure out the drivers behind each profits
and costs. Now no one can say that financial statements shows only the financial records there are also the
hidden non financial factors (volume drivers) behind each and every income and costs. If those drivers are
handled properly, any management could have satisfied financial statements in the near future!
Apart from the hidden non financial factors in the financial statements the management should also
capture the other crucial business perspectives such as customers, internal growth, learning and innovation
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8. and finally financial perspective. External stakeholders look at a range of non-financial performance
measures to assess and evaluate how well a company is meeting its corporate responsibility objectives.
These are seen as a proxy for good management. To communicate this information, companies require
relevant non-financial key performance indicators, or KPIs."
The best suited approach to capture these elements is the Balance scorecard developed by Robert Kaplan.
This approach is a measurement system that enables organizations to clarify their vision and strategy, and
translate both into action. Each company should ask the following questions as presented in Figure 2.0 in all
these perspectives.
Figure 5.1: A Balance Scorecard Model
As mentioned in the limitations, itโs the organisations responsibility to choose the crucial correct non
financial indicators that are value driven, appropriate and what the investors or the stakeholders will be
interested in without selecting and focusing on all measures which can consume more time and cost and
lead to improper decisions. There have to be measurement integration between non financial measures and,
links between financial measures and non financial measures which should be focused on (unlike what
Xerox did). Statistical reliability and scaling can be improved by aggregating all the measures.
As shown in Figure 2.0 in each business perspective objectives have to be clear and communicated within
the organisation, in order to get a proper understanding.
Some non financial objectives and measures related to these four perspectives that any organisation can
select and focus on have been presented in Appendix 2 presented by Kaplan and Norton.
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9. These two models clearly show the importance of non financial information in decision making in
organisations. Using these models will provide a cutting edge for all companies. Just knowing and
understanding this models wonโt help organisations to perform well, implementing this models in the
correct time is what matters.
Finally, how this captured non financial information should be incorporated and presented in a business
reporting has been discussed.
6. Non financial information in Reporting
Figure 6.1: Sustainability at work
Source โ sustainability at work
Those days there were only financial issues were presented for information but these days a narrative
reporting should include all three aspects on information which has been shown in Figure 3 which is known
as the non financial business reporting.
Listed down are the features of non financial business reporting as per ICGN - International Corporate
Governance Network:
โข The presented information should be genuinely informative and include forward-looking elements
where this will enhance understanding
โข Be material, relevant and timely
โข Describe the companyโs strategy, and associated risks and opportunities, and explain the boardโs
role in assessing and overseeing strategy and the management of risks and opportunities
โข Be accessible and appropriately integrated with other information that enables investors to obtain a
whole picture of the company
โข use objective metrics where they apply and evidence-based estimates where they do not
โข Use key performance indicators that are linked to strategy and facilitate comparisons
โข Be strengthened where possible by independent assurance that is carried out having regard to
established disclosure standards applicable to non-financial business reporting, such as those issued
by the IASB
For further details, please refer the bibliography.
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10. 7. Conclusion
As Management accounts we do not focus only on the financial records but also on the drivers associated
with costs and income. The volume drivers are considered to be non financial information. In addition to
this the other side of the business perspective that should be focused on a business is quality, customers,
employees, risks climate, CSR etc. The models that have been presented to capture these measures are
Profit tree model and Balance score card. Implementing these models in decision making and in the
reporting process will give the companies the cutting edge and of course the competitive advantages to out
stand their competitors.
In concluding all companies should try to adopt these models and understand the importance of non
financial information.
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11. Appendices
Appendix 1 - The Profit Tree Model
Revenueย
Number of products sold / services are considered to be the possible volume drivers for revenue. But this
may differ company to company.
Potentialย Expensesย
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13. The highlighted factors are the possible volume drivers associated with the potential expenses.
These potential revenue and cost elements could be arrived from the financial statements (e.g. Profit and
Loss). It is the responsibility of each Management Accountant to identify the potential volume drivers and
proceed the analysis.
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14. Appendix 2 - Norton and Kaplan Balance Score Card Objectives and Measures
Perspectives Typical Objectives Typical Measures
Financial 1.Create new sources of revenue 1.Revenue from new customers and
products
2.Increase revenue per customer
2.Share of wallet
3.Increase customer profitability
3.Revenue mix vs. target 4.Profits
4.Improve Sales productivity per customer (activity-based
costing)
5.Cost of sales (by channel)
Customer 1.Increase customer satisfaction 1.Percentage of highly satisfied
(with value proposition) customers
2.Increase customer loyalty 3.Create 2.Customer retention
raving fans
3.Depth of relationship 4.Percentage
of business from customer referrals
Internal Process Selection 1.Understand segments 1.Contribution by segment
2.Percentage of unprofitable
2.Screen unprofitable customers customers
3.Target high-value customers 3.Number of strategic accounts
4.Manage the brand 4.Brand awareness/preference
Source: Working knowledge Norton and Kaplan
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15. Bibliography
Christopher, I., & David, L. (2000, 12 02). Non-financial Performance Measures: What Works and What Doesn't:
Knowledge@Wharton. Retrieved from http://knowledge.wharton.upenn.edu/article.cfm?articleid=279
INTERNATIONAL CORPORATE GOVERNANCE NETWORK. (2008). IGCN Statement and Guidance on Non - financial
Business Reporting. London: International Corporate Government Network.
http://www.icgn.org/best-practice/documents/-/page/50/
S. Kaplan, R., & David, P. N. (2003, 07 14). Keeping Your Balance With Customers - HBS Working Knowledge. Retrieved
from Harvard Business School: http://hbswk.hbs.edu/item/3588.html
W. N. (2001). Financial Times. Retrieved from http://sundaytimes.lk/030330/ft/news1.html
Balance Scorecard. (2009). Retrieved from The Balance Scorecard Application for the LearnCentre Platform:
http://www.learn.com/learncenter.asp?id=178441&page=16
Sustainability At Work: The Connected Reporting Framework. (n.d.). Retrieved from The Connected Reporting
Framework http://www.sustainabilityatwork.org.uk/strategy/report/0
About the Author
Romila Dominique is Business Research Executive at London-based business intelligence and research based
company BQu. She has 2 yearsโ experience in Market Research and Business management. As a
management graduate, she gained a BSc from the London School of Economics UK in Economics and
Management. She is also a CIMA Passed Finalist. Contact her at romila.dominique@bquintelligence.com
Further information can be obtained on: romila.dominique@bquintelligence.com.
DISCLAIMER: This document has been produced by the Analyst named at the beginning of the document and is the views of the Analyst based on
the information available at the time. BQu does not certify that this information is accurate or of its validity. Where possible the source of the
information is indicated and the client should go back to the original source if he or she is in any doubt about its validity. Clients act on this
information entirely at their own risk.
BQu is a subsidiary of PERItempo Limited a company registered in the UK (registration number 5142955). Correspondence address: 25 Lindfield
Gardens, London NW3 6PX and a registered company in Sri Lanka, BQU Lanka (Pvt) Ltd.
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