Key performance indicators (KBI) are measures to evaluate a company’s performance; these indicators report how well the company has achieved its strategic and operational goals. For example, if a retail store chain sets sale growth as a key performance indicator, it will be used to measure sale growth between store chains and helps to highlight which branch needs more attention of management. In the real world, businesses set the number of indicators like profitability, dividend, cash generation, market share, customer satisfaction and relationship with employees etc.
Types of Key Performance Indicators
Financial measures provide insight that how the company is managing its financial operations and generally based on the company’s financial statements including balance sheet and income statement whereas Non-financial are related to customers, intangible assets like branding, operations, quality, relationship, and employees. Some types of both measures are being discussed individually:
Profitability is a metrics to determine the scope of the company’s profit with respect to its size, for example, the KPI may be 12% improvement in earning annually etc.
Dividend is the amount of return on investment, being paid to shareholders with respect to their investment in the company; the KPI might be set to annual 5% increase in dividend etc.
Return on investment refers to the gain on the investment of shareholders of the company, investors use this measure to calculate how many dollars are being earned by investing $1 in the company.
Cash Generation is described as how much cash is being generated by the company from its operations, poor liquidity is a greater threat than poor profitability.
Gearing represents the combination of debt and equity financing in the capital structure of the company, a higher gearing means more debt is used than equity.
All financial objectives can be assessed by performing ratio analysis of the company.
Market Share is a non-financial performance indicator, which reports how many customers are being served by the company in a particular market. The KPI might be to increase market share by 10 % per annum.
Customer Satisfaction Surveys provide feedback that answers the question; how well the product is fulfilling customers’ needs?
Competitive Position shows the relative position of the business after comparing its competitors.