KPIs ARE ALTERNATIVE TO ASSESSING THE FINANCIAL PERFORMANCE OF COMPANIES

Authors

  • Žaneta Sederavičiūtė

DOI:

https://doi.org/10.15544/ssaf.2020.06

Abstract

Because of new business conditions and everyday changing business environment companies are facing challenges every day, as a result, there is a rising need for the methods that could assess the position of companies more accurately. One of the most popular methods of financial performance assessment disclosed in many research articles is the measurement system via key performance indicators (KPI). Due to that fact, the aim of this paper is to investigate the importance of KPIs and analyze indicators’ application possibilities in the retail sector. To achieve this objective, the analysis of scientific literature sources is performed and the significance and benefits of KPIs on a theoretical basis are discussed, then the application of profitability indicators and KPIs in the retail sector is researched, specific examples of calculation of KPIs are presented, which are performed on the basis of data from the Lithuanian Department of Statistics. The theoretical analysis found that several studies have been conducted to substantiate the benefits of applying KPIs to companies and emphasizes that such an assessment will only be effective if KPIs are chosen correctly according to the company's objectives. For this reason, in this paper will be examined the application of profitability and KPIs indicators and the completeness of the results obtained by different methods in a specific sector, revealed the benefits of certain indicators that organizations from the “G475 Retail sale of other household equipment in specializes stores” sector are able to use in their business. The selected KPIs are suitable for all companies operating in this sector because by looking at the level of the sector’s indicators it is possible to determine the goal that the company is supposed to achieve. The results showed that profitability indicators are necessary part of the companies‘ analysis but the use of KPIs also is very important. KPIs are very useful because that helps organizations to testify how successful they are by achieving their goals and KPIs provide more accurately. Therefore, the selection of KPIs are highly dependent on the specifics of the company and the sector in which it operates. For the companies that are operating in the G475 sector, the proposed indicators are: KPIs related to costs, employee productivity indicators, EBITDA, and EBITDA margin.

Keywords: Key performance indicators (KPI), financial performance, sector’s analysis.

JEL codes: L25, M40.

Published

2020-12-28

Issue

Section

Articles