Mgtl510 - Non-Financial Health

MGTL-510

Rebecca H Watkins

March 31, 2019

        Organizations and businesses cannot look at financial health alone. Both the financial

and non-financial health gives a true picture of the stability and longevity of an organization.

While financial health is most often what investors typically review; they would be amiss to

discount or ignore the non-financial aspects.   Financial health is very straight forward and is

what produced monthly, quarterly and yearly by accounting or finance departments within a

company. There are three fundamental reports. The balance sheet gives an overall snapshot of

the company’s assets.  The income statement shows revenues, expenses and profitability.  

Lastly, the cash flow gives you liquidity (Lambert, 2012).  Non-financial health is everything

else and often the intangible aspects such as customers, customer service, engagement, brands,

safety and quality (Questica, 2017).

       Financial health for a business can be defined as simplistically as the bottom line profit

margin. However, it is never that simple. There are four metrics that should be reviewed when

assessing a businesses’ financial health.  Liquidity, solvency, profitability and operating

efficiency should be reviewed. Liquidity refers to what assets a company can quickly convert to

cash.  The current ratio and the quick ratio are used to measure liquidity.  The quick ratio is the

more precise as well as straightforward.  Simply take the current assets and divide them by the

current liabilities. When the ratio gets below 1.0; the company has too much liability.  Solvency

is similar to liquidity but relates more to long term.  A solvency ratio is derived by the long-term

debt divided by the assets. You may hear it termed debt-to-equity ratio (D/E).  Operating

efficiency is another aspect of determining a company’s financial health. The operating margin is

the best way to determine this.  It tells how well the company is managing costs.  Just like an

individual’s checkbook; too many expenditures or expenses for monies available will lead to

bankruptcy.  Lastly, profitability completes the picture for a company’s health.  Profitability is

measured by using net margin.  Net margin in the ratio of profits to total revenues. The net

margin needs to be robust enough to cover costs of increases in operating costs as well as support

shareholders, if required.  The lower the percentage; the less stable the company (Maverick, J,

2016)

        Non-financial health is more ambiguous but can still be measured to a certain degree. As

mentioned above customers, customer service, engagement, brands, safety and quality are some

of the intangibles that contribute to an organizations health. If your customer base is decreasing

your profits will follow.  Customer satisfaction surveys will give a measure for this intangible.

Just about every company uses customer satisfaction surveys. Service industries paved the

way with these surveys, however, they are being used in virtually every business line to include

Healthcare.  Employee engagement measured by employee surveys relate to turn-over rates

which in turn impact costs of operations.  Engaged employees are more likely to invest

themselves in the company with longevity.  It is surprising the cost of on-boarding a new

employee.  The average cost per hire is four thousand dollars (Peterson, 2018). Multiply that by

the number of employees hired per year and the cost is staggering. Quality and safety measures

can give a dashboard into the company’s compliance with regulations and standards. A company

who performs poorly against defined quality or safety benchmarks will have more liability which

translates into cost.  

         In summary, both financial and non-financial health is important to a company.

However, in my opinion, the non-financial health is more important and can sustain difficult