leading-indicator

Leading Indicator In A Nutshell

Leading indicators are also called inputs because they define what actions are necessary to achieve a measurable outcome. Therefore, that is the variable determining another variable to change/get impacted. Therefore, a leading indicator is harder to measure yet dynamic and changeable. Compared to a lagging indicator, which is easy to track and measure yet hard to really impact.

The key components of a leading indicator

To some extent, they force key decision-makers to ask:

  • How can processes support or achieve high-level goals?
  • How can the skills of a team or individual be improved to reach the desired outcome?
  • How can process steps be improved to make product development more efficient?

Leading indicators usually measure intermediate processes and activities. If met, they are indicative of the business meeting its KPIs and objectives. Put differently, leading indicators are the drivers of results.

Some examples include:

  • Number of leads generated.
  • Number of contracts in negotiation per quarter. 
  • Team closing ratio.

Connected Business Concepts

Double-Entry

double-entry-accounting
Double-entry accounting is the foundation of modern financial accounting. It’s based on the accounting equation, where assets equal liabilities plus equity. That is the fundamental unit to build financial statements (balance sheet, income statement, and cash flow statement). The basic concept of double-entry is that a single transaction, to be recorded, will hit two accounts.

Balance Sheet

balance-sheet
The purpose of the balance sheet is to report how the resources to run the operations of the business were acquired. The Balance Sheet helps to assess the financial risk of a business and the simplest way to describe it is given by the accounting equation (assets = liability + equity).

Income Statement

income-statement
The income statement, together with the balance sheet and the cash flow statement is among the key financial statements to understand how companies perform at fundamental level. The income statement shows the revenues and costs for a period and whether the company runs at profit or loss (also called P&L statement).

Cash Flow Statement

cash-flow-statement
The cash flow statement is the third main financial statement, together with income statement and the balance sheet. It helps to assess the liquidity of an organization by showing the cash balances coming from operations, investing and financing. The cash flow statement can be prepared with two separate methods: direct or indirect.

Capital Structure

capital-structure
The capital structure shows how an organization financed its operations. Following the balance sheet structure, usually, assets of an organization can be built either by using equity or liability. Equity usually comprises endowment from shareholders and profit reserves. Where instead, liabilities can comprise either current (short-term debt) or non-current (long-term obligations).

Capital Expenditure

capital-expenditure
Capital expenditure or capital expense represents the money spent toward things that can be classified as fixed asset, with a longer term value. As such they will be recorded under non-current assets, on the balance sheet, and they will be amortized over the years. The reduced value on the balance sheet is expensed through the profit and loss.

Financial Statements

financial-statements
Financial statements help companies assess several aspects of the business, from profitability (income statement) to how assets are sourced (balance sheet), and cash inflows and outflows (cash flow statement). Financial statements are also mandatory to companies for tax purposes. They are also used by managers to assess the performance of the business.

Read Next: SWOT Analysis, Personal SWOT Analysis, TOWS Matrix, PESTEL Analysis, Porter’s Five Forces.

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