How to Evaluate a Company's Performance

You can determine how well your company is performing by comparing the results of initiatives to objectives and evaluating to what extent you met your targets. Independently of that process, you can use financial indicators to evaluate your company's business performance and compare it to that of other companies in your field. Both methods are valuable as measures of company performance in an objective way.

Key Operations Variables

The key operational variables for performance evaluation are sales and profitability. To what extent you achieved the sales volume predicted in your planning and how changes in your sales volume compare to the changes at your competitors are accurate measures of company performance. The percent profit margin indicates how much of each dollar earned from sales your company keeps as profit and is a good indicator of overall performance.

Overall Market Performance

While overall performance is important, it depends on company performance in particular areas of activity. Performance in the marketplace influences profitability, which is one of the most important company financial health indicators. The key indicators of market performance are market share and market ranking by sales volume.

Many companies, for example, have a dedicated a marketing budget with the hope that it will increase market share, but don't examine its effectiveness. As Edmund Ingham writes in Forbes such budge's aren't "for real" but are just "for show." If you have a substantial market share and rank in the top two suppliers, you have market influence on pricing and are more likely to be profitable.

Performance in Customer Satisfaction

Performance in customer satisfaction is a key factor in long-term success. The key performance variables are repeat orders and the rate of customer acquisition. If you have satisfied customers, you retain those you have and get new ones at a rapid rate. Your evaluation of performance in customer satisfaction highlights potential problems for overall performance.

Product Quality and Returns

Quality products lie at the root of superior company performance. Two variables indicating whether your products are high quality are returns and warranty claims. These product indicators measure company performance on quality but also impact profitability directly. High rates of returns and warranty claims cut into profitability.

Employee Job Satisfaction and Training

Two indicators of a company's performance internally are employee job satisfaction and training levels. These impact overall performance through the ability of the company to offer high levels of service to its customers. You can evaluate employee job satisfaction by measuring changes in the average length of service. A measure of training levels is the percent of employees who received training each month.

Numerical and Financial Factors

In addition to numerical factors such as profit margin, other indicators allow you to evaluate your company's performance on purely financial terms. Liquidity and solvency ratios evaluate your company's performance with regard to ensuring that it can continue its operations. Liquidity is the ratio of current assets minus current liabilities divided by total assets and measures how quickly a company can raise cash.

Solvency is the ratio of net profit plus depreciation divided by total liabilities and measures your company's ability to continue to service its debt. As described in the Harvard Business Review, you can compare these ratios to those of other companies to evaluate performance.