Understanding Nonfinancial Metrics

Financial metrics are associated with financial statements prepared under generally accepted accounting principles (GAAP). These metrics are important, because many performance drivers are best measured through a financial metric visible in a company’s balance sheet, income statement, and cash flow statement—all prepared under GAAP.

Understanding these financial statements is a hallmark of financial literacy, which is strongly recommended for all directors and strictly required for public company audit committee members. Financial literacy is generally defined as the ability to “read and understand fundamental financial statements.”