Analysis of existing performance report Flashcards
What is the issue with using ROCE and net profit margin as a measure?
Only indirectly linked to shareholder value
Very short-term looking
EVA is more suitable
What does revenue growth imply?
Implies customer satisfaction
But without competitor comparison or market share, it is not possible to draw a conclusion about the quality of the products
How many years of information is required to establish a trend?
At least 3 years
If there are no variances in the performance report what does this mean?
There is no indication whether or not the business is meeting their budgets
What is important in terms of presentation?
Clear and no information overload
Wording that can be understood by those used to reading accounts
Helpful that a narrative is provided
The commentary is an appropriate place to include the qualitative factors - such as innovation and employee culture
What are the common issues with the presentation of financial performance information?
The narrative usually just restates the figures shown
But it should provide significant explanations for each of the major changes commented on
E.g. explaining why the ROCE has exceeded industry average
(1) The performance report has a number of strengths and weaknesses. These will be discussed as to whether the report…
- Measures performance towards the overall aims of the company
- Is well presented
(2) The current mission of the group can be broken down into a number of parts….
The overall objective of the company is ….
This is to be done by ….
How can shareholder value be measured?
EVA
Total return to shareholders
What is the issue with a fully financial performance report?
It is completely based on history
Doesn’t contain information about future prospects in relation to shareholder wealth
