To assess financial performance, a company calculates financial rations. To assess other areas of the business, a company examines its key performance indicators (KPIs), which help management and staff evaluate performance and how it can improve. They do not have a monetary value but they do contribute to the company’s profitability. KPIs is also enable interested outsiders, such as investors, lenders, or analysts, to decide whether to invest in the business.
A KPI for an accounts department might be the percentage of overdue invoices, as this will help determine the department’s efficiency. This is an example of a lagging indicator. It is an outcome and therefore easy to measure, but not straightforward to influence. Companies also looks for leading indicators, which focused on the inputs and easier to change. A leading KPI for accounts department be the percentage of purchased orders raised in advance.