Solution
Financial performance
Financial performance refer to the process of measuring organisational performance in monetary terms (Dirman, 2020). Measuring organisation financial performance helps it to review goals and objectives, and plan ways for improving the company.
Cash flow
Organisation’s cash flow indicates the cash flowing in and out of the business (Dirman, 2020). The ability of an organisation to create value for its stakeholders is influenced by its ability to generate positive cash flows. Higher cash flows show that the company is performing well financially because there is more money flowing in. It also means the company can cover its expenses, obligations, return to shareholders and reinvest in its business. A negative cash would imply a higher degree of spending. However, the cash flow cannot be used to measure profitability of an organisation. Despite that the cash flow is a good indicator of financial performance, the company may still make losses after paying its debts and taxes. Lenders would also not rely on company’s cash flow when lending money. Creditors would want to understand the final profit of the company after deducting all expenses (Afiezan et al., 2020). This metric may also fail to tell why there are changes in cash flow in and out.
Non-financial performance
Non-financial performance measure refer to metrics that an organisation may use to gauge its performance and success, but not in monetary value.
Customer retention and churn
This is a common metric used to understand the success of an organisation in the industry. It looks at the number of customers who return to buy goods and services (Castéran et al., 2021). A higher customer retention is a good indicator of a thriving and successful organisation. On the other hand, customer churn determines the number of customers who stop purchasing company’s products and services (Castéran et al., 2021). Organisations seek to improve customer retention while reducing churn rate. It can inform managers why there is changes in profit depending on customer retention. The problem with this metric is understand when a custom stops being a customer or coming back. For example, some products like subscription service may take long period. For this case, the churn period may not happen until one month subscription after the lapsed renewal date. These metrics may also create inaccuracies as they are qualitative and not quantitative. Ascertaining customer retention and churn in financial year can be more challenging.
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