PracticeConsultingNon-financial indicators are key

Non-financial indicators are key

Non-financial performance indicators drive at least 35% of investor decisions, according to research from Ernst & Young's strategic finance group published this month.

And the greater the uncertainty, the greater this proportion, the study revealed.

E & Y partners Nick Pasricha and Andrew Tivey’s publication Measures that matter provides a practical framework for the management of shareholder value in the new economy. The research links hard numeric data to ‘soft’ performance indicators, such as the quality of future growth strategy as well as a company’s ability to be innovative and deliver its promise of future wealth.

According to the report, today’s capital market analysts look at two sources of value – the net present value of a company’s existing business model, and the value of its future growth options.

Andrew Tivey, partner in the firm’s strategic finance group, said: ‘This is what shareholder value management in the new economy is all about. The old shareholder value management model, which concentrates exclusively on tangible assets and sales growth, profits, cashflow and return on investment is no longer enough.’

Other key findings of the report are:

  • The more non-financial information analysts use, the more accurate their forecasts;
  • In the absence of any established framework for non-financial performance, a common hierarchy emerges of critical measures that matter that analysts and buy-side investors respond to. This is consistent in both the UK and the US;
  • The influence of specific non-financial performance, or measures that matter, varies from industry to industry;
  • Rating in one aspect of non-financial performance influences perceptions in other areas of non-financial performance.

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