Understanding Nonfinancial Metrics

Directors must understand and use metrics—financial and nonfinancial—that gauge an organization’s health.  

Financial metrics are associated with financial statements prepared under generally accepted accounting principles (GAAP).  However, to obtain a complete picture, directors must look at additional metrics, referred to generally as “nonfinancial.”  The economic importance of nonfinancial metrics is recognized in US securities laws, which attempt to uncover all material information through rules that mandate disclosure of both financial and nonfinancial information. Looking beyond what is mandated, shareholders clearly value measures of performance in areas outside the typical financial disclosures, for example, sustainability reporting. 

Nonfinancial metrics can reflect a company’s key value drivers. They herald the future because they are building it. Financial metrics essentially count the money made from activities, while nonfinancial metrics are about the activities themselves. Metrics such as higher growth rates for new patents or for customer retention may lead to increased revenues. In this sense, they may be considered “leading,” rather than “lagging,” indicators.  

The categories presented in this report reflect traditional US business categorized into five groups that emulate the global standards used for so-called “integrated reporting” (IR)—an increasingly popular standard for reporting nonfinancial metrics 

The key nonfinancial metrics discussed in the report include:  

• Products and services 
• Operations and safety  
• Talent and culture  
• Market and reputation; and,  
• Resilience and sustainability  

For each metric, this report explains why it matters, where it can be found, and how to interpret it.  

Aimed primarily at public company directors, this guide can also be useful for fiduciaries of nonprofits and privately owned companies.