Businesses use financial information and nonfinancial information to manage their operations. Managers create reports that share performance information in terms of financial data as well as nonfinancial data. Managers and business owners must understand the meaning of both types of information and the impact each holds on the business.
Managers evaluate company and employee performance using a variety of financial and nonfinancial measures. Management uses financial measures to evaluate company performance, comparing net income to prior years and reviewing the current ratio. Management also uses nonfinancial measures to evaluate company performance, reviewing the number of defects from the manufacturing process or looking at sales quantity for the period. An example of a financial performance measure for an employee would be gross sales by employee. A nonfinancial performance measure for an employee would be production units per shift.
Marketing involves creating new products and finding customers for them. Companies rely on their marketing departments to drive the business into future sales opportunities. The marketing department in a business gathers both financial and nonfinancial information to use for planning its marketing strategy. Financial marketing information includes sales dollars broken down by industry and product. Nonfinancial marketing information includes buyer demographics and regional preferences.
Senior managers, department leaders and owners wait for the monthly business results to determine the health of the business and make decisions regarding their future actions with the company. Companies report monthly results -- including both financial and nonfinancial information -- to these individuals. Financial information includes detailed financial statements or sales dollars by product line. Nonfinancial monthly results include sales quantities by product line or number of customers.
Managers work with employees to set goals for upcoming periods. A good set of goals includes both financial and nonfinancial goals for the employee to work toward. Financial goals for a sales manager may include increasing the sales dollars in a particular product line or reducing the travel expenses incurred by the salespeople. Nonfinancial goals for a department manager may include reducing the number of overtime hours or reducing the number of machine downtime hours.