Management Accounting · Monitoring performance and reporting

Performance Measures: Financial, Non-Financial and Ratios

Updated 11 October 2026 · Fact-checked

Performance measures show how well an organisation meets its objectives. Financial measures use money figures, such as ROCE, profit margins and liquidity ratios. Non-financial measures cover quality, customers, time and people. To answer questions, identify the measure, write the formula, substitute the figures, then interpret the result against a benchmark.

Understand Performance Measures: Financial, Non-Financial and Ratios

A performance measure turns an objective into a number you can track. If a company wants to grow profit, you measure profit. If it wants happy customers, you measure complaints or repeat orders. Without measures, managers cannot tell if plans are working.

Financial measures come from the accounts. They fall into three groups: profitability (ROCE, gross margin, operating margin), liquidity (current ratio, quick ratio) and efficiency (asset turnover, inventory days, receivables days, payables days). They are objective and easy to compare, but they look backwards and can encourage short-term thinking.

Non-financial measures cover things money figures miss: product quality, delivery times, customer satisfaction, staff turnover, market share. They often predict future financial results. Their weakness is that they can be hard to measure and compare.

The balanced scorecard (Kaplan and Norton) combines both kinds in four perspectives: financial, customer, internal business process, and innovation and learning. It asks: how do we look to shareholders, how do customers see us, what must we excel at, and can we keep improving?

Not-for-profit bodies are judged on value for money, the 3Es: economy (spending less on inputs), efficiency (getting more output per input) and effectiveness (achieving the objectives). Profit is not their main aim, so ratios alone are not enough.

Key formulas to remember

Return on capital employed (ROCE): ROCE = Profit before interest and tax ÷ Capital employed × 100%; Capital employed = total assets less current liabilities, or equity plus long-term debt. Use the definition given in the question.
Gross profit margin: Gross profit ÷ Revenue × 100%; Shows profit after direct costs only.
Operating profit margin: Operating profit ÷ Revenue × 100%; Operating profit is profit before interest and tax.
ROCE breakdown: ROCE = Operating margin × Asset turnover; Asset turnover = Revenue ÷ Capital employed. Helps explain why ROCE changed.
Current ratio: Current assets ÷ Current liabilities; Expressed as a ratio, such as 1.5 : 1.
Quick ratio: (Current assets − Inventory) ÷ Current liabilities; Removes inventory because it is the least liquid current asset.
Inventory days: Inventory ÷ Cost of sales × 365; Average days stock is held.
Receivables days: Trade receivables ÷ Credit sales × 365; Use revenue if credit sales are not given.
Payables days: Trade payables ÷ Credit purchases × 365; Use cost of sales if purchases are not given.
Value for money: Economy + Efficiency + Effectiveness (the 3Es); Economy = inputs at lowest cost; efficiency = output per unit of input; effectiveness = objectives achieved.

How to solve Performance Measures: Financial, Non-Financial and Ratios questions

Use this method for any performance measurement question, whether it asks for a calculation or a judgement.

1Read what is being asked: calculate, interpret, or choose the right measure.
2Identify the type of measure: profitability, liquidity, efficiency, non-financial, or 3Es.
3Write the formula from memory before you use any numbers.
4Pick the correct figures from the data. Check which profit and which capital employed the question wants.
5Calculate and round as instructed. Keep the % sign or the days unit.
6Compare with a benchmark: last year, budget, a competitor or the industry.
7For multiple response, check each option separately and select exactly the number asked.
8Reread the question to confirm your answer fits the wording.

Quickest way: Formula, figures, sense check

When to use it: Use for number entry and multiple choice calculation questions when time is short.

Write the formula in one line on your scratch paper.
Underline the exact figures in the question and tick them off as you substitute.
Compute once, then sense check: is a margin above 100% or a negative days figure possible? If not, recheck.
For interpretation options, eliminate any that confuse the measure, such as calling a liquidity ratio a profitability ratio.

Common mistakes in Performance Measures: Financial, Non-Financial and Ratios

Using profit after interest, or net profit, in ROCE.
Students grab the last profit figure shown.
Fix: Use profit before interest and tax unless the question states otherwise.
Forgetting to deduct current liabilities when calculating capital employed from total assets.
Total assets looks like the obvious capital figure.
Fix: Capital employed = total assets − current liabilities, or equity + long-term debt. Check both routes if data allows.
Including inventory in the quick ratio.
It is mixed up with the current ratio.
Fix: Quick ratio removes inventory from current assets first.
Treating a high or low ratio as always good or bad.
Students memorise one-sided rules.
Fix: Interpret in context. A very high current ratio may mean idle cash or slow inventory; a low receivables days figure is good only if sales are not lost through tight credit.
Mixing up economy, efficiency and effectiveness.
The three words sound alike.
Fix: Economy is cost of inputs, efficiency is output per input, effectiveness is hitting the objective.
Saying non-financial measures are not useful because they are not in money.
Students over-trust accounting numbers.
Fix: Explain that they are leading indicators and balance short-term financial focus.

Worked examples

Example 1

A company has revenue of $800,000, cost of sales of $520,000, operating profit of $96,000 and capital employed of $600,000. Calculate the gross profit margin, operating profit margin, asset turnover and ROCE.

Show the solution

Gross profit = 800,000 − 520,000 = 280,000.
Gross margin = 280,000 ÷ 800,000 × 100% = 35%.
Operating margin = 96,000 ÷ 800,000 × 100% = 12%.
Asset turnover = 800,000 ÷ 600,000 = 1.33 times (1.3333).
ROCE = 96,000 ÷ 600,000 × 100% = 16%.
Check: 12% × 1.3333 = 16%.

Answer: Gross margin 35%, operating margin 12%, asset turnover 1.33 times, ROCE 16%.

Example 2

A company has inventory $45,000, trade receivables $60,000, cash $15,000, trade payables $50,000 and an overdraft $30,000 (all current). Annual credit sales are $730,000 and cost of sales is $438,000. Calculate the current ratio, quick ratio, inventory days and receivables days.

Show the solution

Current assets = 45,000 + 60,000 + 15,000 = 120,000.
Current liabilities = 50,000 + 30,000 = 80,000.
Current ratio = 120,000 ÷ 80,000 = 1.5 : 1.
Quick ratio = (120,000 − 45,000) ÷ 80,000 = 75,000 ÷ 80,000 = 0.94 : 1.
Inventory days = 45,000 ÷ 438,000 × 365 = 37.5 days.
Receivables days = 60,000 ÷ 730,000 × 365 = 30 days.

Answer: Current ratio 1.5 : 1, quick ratio 0.94 : 1, inventory days 37.5, receivables days 30.

Exam tips

Memorise each formula exactly. Objective questions often hide the trap in which figure to use, not in the arithmetic.
In multiple response questions, select exactly the number stated. Judge each statement on its own.
Link each non-financial measure to a balanced scorecard perspective. For example, staff turnover belongs to innovation and learning.
For value for money, ask: is this about cost of inputs (economy), output per input (efficiency) or achieving the aim (effectiveness)?
Always note the unit asked for: percentage, times, days or ratio.

Practice questions from Monitoring performance and reporting

Performance Measures: Financial, Non-Financial and Ratios in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Performance Measures: Financial, Non-Financial and Ratios: frequently asked questions

What is the difference between financial and non-financial performance measures?

Financial measures are expressed in money and come from the accounts, such as ROCE and profit margin. Non-financial measures cover areas like quality, customer satisfaction and staff turnover. Non-financial measures often give early warning of future financial results.

How do I calculate ROCE in ACCA MA?

Divide profit before interest and tax by capital employed, then multiply by 100. Capital employed is usually total assets less current liabilities, or equity plus long-term debt. Use the definition in the question if one is given.

What are the four perspectives of the balanced scorecard?

They are financial, customer, internal business process, and innovation and learning. Each perspective has goals and measures. Together they stop managers focusing only on short-term profit.

What are the 3Es in value for money?

Economy means obtaining inputs at the lowest suitable cost. Efficiency means getting the most output from the inputs used. Effectiveness means the outputs achieve the organisation's objectives.