ACCA Strategic Professional · Strategic Business Leader · Enabling success: performance excellence
Tamarind Logistics reports that its managers focus almost entirely on quarterly profit and return on capital employed. The board is concerned that these measures show only past results and say little about future competitiveness. Which of the following best describes the main weakness of relying only on these financial indicators?
The main weakness is that financial indicators like profit and ROCE are lagging measures. They report the results of past decisions and give little warning about future performance drivers such as customers, innovation and people, so non-financial indicators are needed alongside them.
- AThey are lagging indicators that reflect past decisions and give limited insight into drivers of future performanceCorrect
- BThey are too subjective to be audited reliably
- CThey cannot be expressed in monetary terms
- DThey only measure the efficiency of internal processes
Explanation
Financial measures such as profit and ROCE report outcomes of past actions, so they are lagging indicators. They do not show leading drivers such as customer satisfaction, innovation or staff capability. The other options are wrong because financial measures are monetary and generally auditable, and they do not only cover internal processes.
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