BSC - Finance perspective

The Financial Pespective defines the financial objectives which represent the long-term objectives of the whole organization: to achieve higher profitability based on the capital employed. The financial objectives are commonly linked with profitability, like for example “Operating Income / Sales”, the “Return on Capital Employed(ROCE), the “Return on Investment” (ROI), the “Return On Equity” (ROE), the “Economic Value Added” (EVA) or the Cash Flow generation among others.

The financial performance indicators are the focus or direction for the other perspectives of the BSC. They are the starting point from where the cause-effect relationships must be constructed. Each one of the selected objectives and measures must be part of a cause-effect relationships group, they must be consistent, balanced and mutually reinforcing.  Their objective is to contribute to improve financial performance. These relationships are summarized at the strategic map.

The objectives and financial performance indicators are used to define the strategy expected financial performance, the expected results, and they serve as the ultimate objectives and measures for the rest of the other perspectives of the BSC.

The BSC states the financial objectives and adapts them to the different growing phases and company’s lifecycle. Through the BSC the financial perspective allows us to:

Follow the evolution of results: It summarises the evolution of the company’s results up to date.

Establish the long-term business objectives, the key drivers to success, the performance measures and the relationships between them.

Evaluate the company’s performance: Measure and compare current versus expected results, all with the main goal to check whether the current company strategy is helping to achieve the expected objectives. Ultimately, these are to bring value to customers, shareholders and other stakeholders (employees, suppliers, the community where the company operates and the society in general). 

 Some examples of financial indicators

  • EBITDA interest coverage (x): 
  • (FFO) Funds From Operations to Total Debt:
  • (FOCF) Free Operating Cash Flow to Total Debt:
  • ROCE: Return On Capital Employed:
  • Operating Income to sales:
  • Sales to Equity:     
  • Sales to Financing:  
  • Long-term dept to (Equity + Long-term debt): 
  • Total debt to (Equity+ Total debt): 
  • ROE:
  • CAPEX to sales:
  • EVA= NOPAT - (Capital Employed x WACC):
  • Cash Flow to Sales:
  • Non-current assets efficiency:
  • Cash Conversion Cycle (CCC):
  • Current Assets to Current liabilities:
  • Operational expenses coverage:
  • Net Working Capital (NWC) to Total Assets:

financial-collage

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