Traditional Financial Indicators.

The first 200 words of this essay...

'In today's worldwide competitive environment companies are competing in terms of product quality, delivery, reliability, after-sales service and customer satisfaction.'(Chairman. FTSE 100 company, 2003)

During the 1970-80's there have been statements like "the less you understand the business, the more you rely on accounting number" and "the nearer you get to operations, the more non-financial performance indicators you realise could be valuable aids to better management".

Statements like this give rise to some of the biggest fundamental questions for today's companies as, does the traditional financial ratio analysis have any part to play in the modern commercial world? Is there validity by companies to continue enhancing the traditional financial ratio analysis? To be able to answer these question one need to have an understanding of what is meant with financial and non-financial indicators and their limitations. The objectives in this essay will therefore be to consider the validity of the questions above.

Traditional Financial Indicators

The use of traditional financial indicators started in the early 1900s, when the three Du Pont cousins developed the pyramid of financial ratios as return on equity (ROE), return on investment (ROI) and shareholder value to