Accounting Based Performance Measures

To evaluate firm performance, we can use accounting- based measures such as sales, earnings per share, growth rate of a firm. However, accounting performance measures are vulnerable to distortion by accounting principles, whose application may be somewhat subjective (such as when to recognize revenue or how quickly to depreciate assets). Rather than present an unbiased view of firm performance, accounting statements may be oriented toward the perspective that management wants to present. Additionally, accounting-based performance measures are always historical, telling us where the firm has been.