Chapter 13 - Performance measurement and controlq Flashcards
Establishing the value of a particular indicator will add little benefit until it is what?
- compared with a budget
- set in a trend
- and/or set against a best practice benchmark
What is the calculation for gross profit margin?
Gross profit / Turnover x 100
What does the ROCE show?
the operating profit that is generated from each £ of assets employed
What is the calculation to find the return on capital employed (ROCE)
operating profit / capital employed x100
What is the calculation to find the operating profit margin
operating profit / turnover x100
What are some dis adv of ROCE?
may lead to dysfunctional decision-making
different accounting policies can confused comparisons
What is the calculation for profit margin?
Profit / Turnover
What is the calculation for Asset turnover?
turnover / capital employed
How do we calculate the inventory holding period?
inventory / cost of sales x 365
How do we calculate the receivables collection period?
Receivables / turnover x365
How do we calculate the payables period?
Payables / purchases x 365
How do we calculate the current ratio?
current assets / current liabilities
How do we calculate the quick ratio (acid test)?
Current assets - inventory / current liabilities
How do we calculate financial gearing?
Debt / equity x100 or Debt / Debt + equity x100
What does a high level of gearing indicate?
That the company relies heavily on debt to finance its long term needs
How do we calculate interest cover?
Operating profit / finance cost
What does a decrease in interest cover indicate?
That the company is facing an increased risk of not being able to meet its finance payments as they fall due
How do we calculate dividend cover?
Net profit / dividend
What does a decrease in dividend cover indicate?
that the company is facing an increased risk of not being able to meet its dividend payments as they fall
What are some dis adv of financial performance indicators?
- only tell what has happened over a limited period in the immediate past
- give no indication of what will happen in future
- do not relate to strategic management
- vulnerable to manipulation
What are the four objectives in the balanced score card?
financial perspective
customer perspective
internal business process perspective
learning and growth perspective
What are some advs of the balanced score card?
- includes financial measures - reveal results of actions taken
- includes non-financial - drive future financial performance
- external and internal info
What are some dis advs of the balanced score card?
- difficult to record and process non-financial data
- info overload
- lack of commitment by senior managers
- conflict between measures
- time and cost
How can sustainability be introduced in the balanced scorecard in regard to customer perspective?
taking the interests of sustainibility stakeholders into account e.g., green/environmentally conscious customer
How can sustainability be introduced in the balanced scorecard in regard to the internal business process perspective?
How the environment impacts of processes been considered? wastage, recyling
How can sustainability be introduced in the balanced scorecard in regard to the learning growth perspective?
Do training and development programmes promote sustainability values. Are innovations resulting in efficiences that reduce pollution?
What is the building block model?
A performance measurement system for the service sector based on 3 building blocks
What is the 3 building blocks?
Dimensions
standards
rewards
What are the 6 dimensions?
Downstream:
- financial performance - TO growth
- competitiveness - market share
Upstream:
- quality of service - service reliability
- flexibility - delivery time
- resource utilisation - productivity
- innovation - new service
What are the 3 characteristics of standards?
- ownership
- achievability
- fairness
What are the 2 standards that need to be met for employees to be motivated?
- clear
- linked to controllable factors
What are some advs of the building block model?
- tailored to the service sector
- targets should motivate staff due to ownership, achievability, fairness
- reward system should be motivation as clear and linked to controllable factors
What are some dis adv of the building block model?
- not suitable for non-service organisations
- can be difficult to see the link to strategic objectives
What are performance measurements?
provide useful info to management which aid the control of the business
Who are the stakeholders?
Loan providers
Government
custoemrs
employees
shareholders
What are the important external considerations?
- market conditions
- competitors
