Skip to content

ACCA Strategic Professional · Advanced Performance Management · Financial performance measurement

Marlow Retail's board bases the finance director's bonus entirely on reported earnings per share (EPS) for the current year. The finance director defers a major store refurbishment and cuts staff training spending, which raises this year's EPS by 8%. Which limitation of the financial measure is MOST directly illustrated?

The scenario shows short-termism. Deferring refurbishment and cutting training boosts current-year EPS, and so the bonus, while damaging long-term value. Purely annual financial measures reward such behaviour, which is why they should be balanced with non-financial and long-term indicators.

  1. AFinancial measures are too complex for managers to understand
  2. BFinancial measures are not comparable between companies using different currencies
  3. CFinancial measures encourage short-termism and can be improved at the expense of long-term valueCorrect
  4. DFinancial measures cannot be audited

Explanation

Cutting discretionary spending lifts current profit and EPS but harms future competitiveness, customer experience and capability. This is short-termism driven by a purely annual financial measure. Complexity, currency and auditability are not what the scenario shows.

Did you get it right without looking?

One question tells you little. A timed set on Financial performance measurement shows your real accuracy, how long you take and where you lose marks.

Practise Financial performance measurementFree diagnostic mock

More Financial performance measurement questions