Financial performance indicators Flashcards
1
Q
What are the disadvantages of using financial performance indicators?
A
- Lag indicators: the financial impact in terms of sale or profitability of a decision taken at an organisation will be reported some time after decisions have been made.
- Provide little insight into the business as they could be said to be the product of decisions made and actions taken possibly long before the period in which they are reported and/or considered.
- Provide very little linkage to the strategy of the business and may involve ‘short-termism’ and overlook motivation, quality, efficiency and other drivers of success.
- They are vulnerable to manipulation and to the choice of accounting policies.
