Chartered accountant and institute president Manil Jayesinghe believes that although it remains an important measure, traditional financial performance metrics depicted by key performance indicators (KPIs) such as revenue and profit are no longer capable of capturing the entirety of modern business operations.
“While useful, it is a historical and subjective measure that doesn’t reveal as much for modern businesses as it once did. When Google and Facebook were first listed on the stock market, their price was not driven by how well they
performed but how they were expected to perform,” he says.
Jayesinghe notes that traditional financial performance doesn’t take into account valuable metrics such as a
company’s ability to innovate in the future or the talent pool of its human capital.
“It is a metric that requires revision. We need to look at financial performance in the light of a company’s position rther than chasing peak results for short-term growth,” he stresses.
To prove his point, Jayesinghe urges consideration that profitability and growth will differ based on a company’s life cycle – startups for example, can expect to incur losses while they develop a customer base and look for exponential growth, whereas established companies tend to generate sufficient profits and growth albeit at a slower rate.
While acknowledging the importance of orthodox financial performance in gaining corporate respect, Jayesinghe
suggests that if companies truly seek such heights, they ought to map their value statements and future propositions to their indicators – including innovation and workforce dynamism.
Additionally, he notes the need for companies to revisit financial performance in the wake of COVID-19: “Financial performance must now prioritise basic survival over the comparison of past performance and the performance of competitors.”
Jayesinghe also asserts that companies may have to embody elements of CSR for their overall health and that of their respective industries, as well as sustaining healthy cash flow management over profits.
“With the whole world staring down the barrel of the worst recession in decades, several industries will take years to recover financially,” he cautions.
In addition, Jayesinghe argues that as profitability is no longer the defining criteria of performance, “if companies hire more women in line with the Millennium and Sustainable Development Goals, they could more than likely double the workforce in key industries and mitigate the impact of a recession.”
Jayesinghe contends that COVID-19 has necessitated that the workforce be dynamic and the Sri Lankan economy move away from traditional industries.
He elaborates: “The main thrust industries are hurt badly. Tourism and the apparel industry are in jeopardy, and
foreign labour markets in Italy and the Middle East will return lower worker remittances owing to COVID-19 and the related price war for oil.”
Therefore, he urges that policy writers create an environment that promotes dynamic and intelligent graduates so that the Sri Lankan economy can move away from traditional industries, and develop nascent but advanced commercial opportunities that will prove beneficial for the financial health and performance of the nation.
“It is up to policy writers and the establishment to create an education system that produces graduates who are
comfortable taking calculated risks and being innovative, Jayesinghe posits.
And he continues: “Although Sri Lanka has moved from being a low income nation and enjoys middle income status, the education system hasn’t kept pace with changes in the socioeconomic status; and therefore, it is more vulnerable to shocks that affect financial performance.”
In Jayesinghe’s view, the solution for Sri Lanka calls for embracing change: “With a recession of the likes we haven’t witnessed before, companies ought to abandon the chase of short-term performance and embrace more novel metrics to analyse their operations.”
“If this is merged with renewed corporate values aligned with social responsibility, and a dynamic and intelligent workforce, corporates can hope to weather any financial storm,” he concludes.
