Strategic Business Leader · Enabling success: performance excellence

Financial and Non-Financial Performance Indicators in ACCA SBL

Updated 11 October 2026 · Fact-checked

Performance indicators measure how well an organisation delivers its strategy. Financial indicators, such as ROCE and margins, show results in money terms. Non-financial indicators, such as customer satisfaction and staff turnover, show drivers of future results. In SBL you select relevant measures, interpret them against the scenario, and challenge their limits.

Understand Financial and Non-Financial Performance Indicators

A performance indicator is a measure that tells you whether the organisation is achieving its objectives. You cannot judge success without first knowing what the organisation is trying to do. So always start with the objectives and critical success factors, then choose indicators that match them.

Financial indicators are measured in money. Examples are revenue growth, gross and operating margin, ROCE, EPS, liquidity ratios, gearing and cash flow. They are objective, widely understood, comparable over time and across firms, and shareholders and lenders care about them. But they are lagging: they report what has already happened.

Non-financial indicators are not measured in money. Examples are customer satisfaction, market share, on-time delivery, defect rates, staff turnover, employee engagement, innovation pipeline, and carbon emissions. They are often leading indicators because they predict future financial results. They also cover stakeholders such as employees, communities and regulators, which finance numbers miss.

Both types have limits. Financial measures can encourage short-termism: managers cut R&D, training or maintenance to hit this year's profit or bonus target. They are affected by accounting policies, and they ignore intangible assets such as brand and knowledge. Non-financial measures can be vague, hard to link to profit, and too numerous. Managers may then focus on the easy-to-hit targets.

Data quality matters for both. Data may be inaccurate, late, incomplete, inconsistent between divisions, manipulated, or defined differently from the benchmark. Poor data leads to poor decisions. Measures also need to be compared to something: prior years, budget, competitors or industry averages. A number alone proves nothing.

The best approach is a balanced set of measures linked to strategy, with clear owners, reliable data and a mix of short and long-term targets. Frameworks such as the balanced scorecard help you do this.

Key rules to remember

Return on capital employed (ROCE): ROCE = Profit before interest and tax ÷ (Total assets − Current liabilities) × 100%; Use the definition given in the case. Be consistent between years and with the benchmark.
Operating profit margin: Operating margin = Operating profit ÷ Revenue × 100%; Shows cost control and pricing power.
Gross profit margin: Gross margin = Gross profit ÷ Revenue × 100%; Falls may signal price pressure or rising direct costs.
Asset turnover: Asset turnover = Revenue ÷ Capital employed; ROCE = operating margin × asset turnover. Use it to explain why ROCE changed.
Current ratio: Current ratio = Current assets ÷ Current liabilities; A liquidity measure. Interpret with the industry norm.
Gearing: Gearing = Debt ÷ (Debt + Equity) × 100%; Definitions vary. State the one you use.
Leading vs lagging rule: Leading indicator = predicts future results; lagging indicator = reports past results; Financial measures are mostly lagging. Many non-financial measures are leading.

How to solve Financial and Non-Financial Performance Indicators questions

Use this method for any question on choosing, calculating, interpreting or criticising performance indicators.

1Read the requirement and identify the verb: calculate, evaluate, recommend, or criticise. Note who the audience is.
2Identify the organisation's objectives and critical success factors from the scenario. Measures must link to these.
3Select a balanced set: financial and non-financial, and cover stakeholders that matter in the case.
4Calculate only the ratios needed. Show the formula and note any assumptions.
5Interpret each result. Compare with prior year, budget, competitors or industry. Say what changed, why, and what it means for strategy.
6Evaluate the limits: short-termism, accounting policy effects, weak links to profit, too many measures, and data quality problems.
7Make a clear recommendation, for example adding measures, changing targets or improving data systems, and tie it to the scenario.
8Write in the requested format and use a professional tone to earn professional skills marks.

Quickest way: Objective, measure, limit, action

When to use it: Use when time is short and the question asks you to evaluate or recommend performance measures.

Write the objective from the case in one line.
List one or two financial and one or two non-financial indicators that fit it.
For each, give a case-specific reason it is useful and one limit.
Add a short-termism or data quality point linked to the facts given.
Finish with one clear recommendation.

Common mistakes in Financial and Non-Financial Performance Indicators

Listing ratios with no link to the organisation's objectives.
Students recall a textbook list and write it out without reading the case for strategy.
Fix: Start every answer with the objective. Choose measures that show progress toward it.
Calculating ratios but not interpreting them.
Calculations feel safe and earn quick marks in practice.
Fix: For each ratio, state the trend, the likely cause from the scenario and the consequence. Aim for a comment with every number.
Saying non-financial measures are better than financial ones, or the reverse.
Students see the topic as a contest between the two.
Fix: Argue for balance. Financial measures show results, non-financial measures show drivers, and both have limits.
Describing short-termism generally with no example.
It is memorised as a definition.
Fix: Name the behaviour in the case, such as cutting maintenance or training to reach a bonus target, and explain the long-term harm.
Ignoring data quality and comparability.
Students assume the figures in the case are reliable.
Fix: Ask whether the data is accurate, timely, consistent and defined the same way as the benchmark. Suggest improvements.
Recommending many new measures at once.
Students think more measures means a better answer.
Fix: Recommend a focused set tied to critical success factors and explain who owns each one.

Worked examples

Example 1

AlphaTech's operating profit rose from ₹40,00,000 to ₹48,00,000. Revenue rose from ₹4,00,00,000 to ₹6,00,00,000. Capital employed was ₹2,00,00,000 in the prior year and ₹3,00,00,000 in the current year. Calculate operating margin, asset turnover and ROCE for both years and comment.

Show the solution

Prior-year operating margin = 40,00,000 ÷ 4,00,00,000 = 10%.
Current-year operating margin = 48,00,000 ÷ 6,00,00,000 = 8%.
Prior-year asset turnover = 4,00,00,000 ÷ 2,00,00,000 = 2.0 times.
Current-year asset turnover = 6,00,00,000 ÷ 3,00,00,000 = 2.0 times.
Prior-year ROCE = 40,00,000 ÷ 2,00,00,000 = 20%. Check: 10% × 2.0 = 20%.
Current-year ROCE = 48,00,000 ÷ 3,00,00,000 = 16%. Check: 8% × 2.0 = 16%.
Comment: profit grew by 20% and revenue by 50%, but ROCE fell because the margin fell while asset turnover stayed flat. Growth may have been bought through price cuts or higher costs.
Financial figures alone do not explain why. Non-financial data such as customer retention, discounting levels and delivery performance is needed.

Answer: Operating margin fell from 10% to 8%. Asset turnover stayed at 2.0 times. ROCE fell from 20% to 16%. The fall is driven by margin, so management should investigate pricing and cost control, supported by non-financial indicators.

Example 2

A retail chain pays store managers a bonus based only on quarterly operating profit. Over two years, profit rose, but staff turnover increased, customer complaints rose and store refurbishment was delayed. Advise the board on the weaknesses of the current measures and on a better approach.

Show the solution

State the issue: the bonus uses one short-term financial measure, so it can distort behaviour.
Link to short-termism: managers may delay refurbishment, cut staff hours and reduce training to lift quarterly profit. This explains the rising turnover and complaints.
Explain the risk: lower service and tired stores may hurt future sales and brand, so profit gains may not last.
Note the limits of the financial measure: it is a lagging indicator, it ignores customers and employees, and it can be affected by timing of costs.
Recommend a balanced set: customer satisfaction, complaint rate, staff turnover, sales per square metre and maintenance spend against plan, alongside profit.
Adjust incentives: include longer-term measures and a deferred element in the bonus so that managers share the long-term effects.
Address data quality: define measures consistently across stores, check accuracy of survey data and use independent review to reduce manipulation.

Answer: The profit-only bonus encourages short-termism and explains the worsening turnover, complaints and delayed refurbishment. The board should adopt a balanced scorecard-style set of financial and non-financial measures with longer-term targets, reliable data and a deferred bonus element.

Exam tips

Always tie each measure to a stated objective or critical success factor in the case. Unlinked lists earn few marks.
When you calculate a ratio, give a comparison and a reason. Use the scenario facts to explain the change.
Raise short-termism and data quality only when the case offers hooks, such as bonuses, tight targets or inconsistent systems. Then use those facts.
Use professional skills marks: write for the named audience, be concise and give a clear recommendation.

Practice questions from Enabling success: performance excellence

Financial and Non-Financial Performance Indicators in other exams

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

Financial and Non-Financial Performance Indicators: frequently asked questions

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

Financial measures are expressed in money, such as profit margin or ROCE. Non-financial measures are not, such as customer satisfaction or staff turnover. Financial measures mostly report past results, while many non-financial measures help predict future ones.

What is short-termism in performance measurement?

It is focusing on immediate results at the expense of long-term value. For example, managers may cut training or R&D to hit this year's profit target. Balanced measures and longer-term incentives reduce the risk.

How do I evaluate financial performance in an SBL case study?

Link the ratios to the organisation's objectives, calculate only those that matter, and compare them with prior years or benchmarks. Explain why the numbers moved using case facts. Then make a recommendation.

What data quality issues should I mention?

Mention accuracy, timeliness, completeness, consistency and comparability. Also mention manipulation to hit targets and different definitions across divisions or competitors. Suggest controls or better systems to fix them.