Key Performance Indicators (KPI) And Example in Accountacy

Definition

Key Performance Indicators (KPI) is a set of measurable proxies used to assess the overall success of an organization. Such KPIs guide the management on the strategic moves to make to achieve the set objectives.

Key Performance Indicators (KPI) monitor firm’s financial health or status, hence analyze growth patterns so as to adjust accordingly to remain competitive in the market.

KPIs  are important in a accountancy for it acts as a motivator to the players especially the employees.

How does Key Performance Indicators (KPI) work?

Key Performance Indicators (KPI) originate from the set goals and objectives of the organization where by such objectives aid in identifying the measurable and specific indicators which act as a yard stick.

Example in Accountancy;

Profitability index can be used as an indicator of whether the organization is improving or not. Profitability can then be specifically measured using classical parameters such as Return on Equity of Return on Investment where by all those measurable indicators are traceable in the financial statements of the business.