Answer to Question #255371 in Accounting for swati

Question

Explain what is a forward-looking metric and what is a backward-looking metric.

Give an example of a backward-looking metric and explain why is it importance for a business top identify, measure and monitor this metric.

Answer 1

Solution:

A forward-looking metric forecasts future business performance. It is a piece of information that allows one to reasonably predict the outcome of a business process.

Backward-looking metrics are based on past performance, such as profitability in the previous quarter or year.

An example of a backward-looking metric is the financial report, which assesses the company's past performance and is used at the end of a reporting period. These metrics provide information about the company's performance in comparison to the previous period. In contrast to forward-looking metrics, these metrics serve as a post-mortem of the company's performance. It is extremely critical for a company to identify, measure and monitor this metric since it is the backbone of the company’s future performance. It also aids a company in making vital decisions that are beneficial to the business operation and financial well-being.