Chapter 13 - Performance measurement and controlq

Question 1

Establishing the value of a particular indicator will add little benefit until it is what?

Answer 1

• compared with a budget
• set in a trend
• and/or set against a best practice benchmark

Question 2

What is the calculation for gross profit margin?

Answer 2

Gross profit / Turnover x 100

Question 2

What does the ROCE show?

Answer 2

the operating profit that is generated from each £ of assets employed

Question 2

What is the calculation to find the return on capital employed (ROCE)

Answer 2

operating profit / capital employed x100

Question 2

What is the calculation to find the operating profit margin

Answer 2

operating profit / turnover x100

Question 3

What are some dis adv of ROCE?

Answer 3

may lead to dysfunctional decision-making
different accounting policies can confused comparisons

Question 4

What is the calculation for profit margin?

Answer 4

Profit / Turnover

Question 5

What is the calculation for Asset turnover?

Answer 5

turnover / capital employed

Question 6

How do we calculate the inventory holding period?

Answer 6

inventory / cost of sales x 365

Question 7

How do we calculate the receivables collection period?

Answer 7

Receivables / turnover x365

Question 8

How do we calculate the payables period?

Answer 8

Payables / purchases x 365

Question 9

How do we calculate the current ratio?

Answer 9

current assets / current liabilities

Question 10

How do we calculate the quick ratio (acid test)?

Answer 10

Current assets - inventory / current liabilities

Question 11

How do we calculate financial gearing?

Answer 11

Debt / equity x100 or Debt / Debt + equity x100

Question 12

What does a high level of gearing indicate?

Answer 12

That the company relies heavily on debt to finance its long term needs

Question 13

How do we calculate interest cover?

Answer 13

Operating profit / finance cost

Question 14

What does a decrease in interest cover indicate?

Answer 14

That the company is facing an increased risk of not being able to meet its finance payments as they fall due

Question 15

How do we calculate dividend cover?

Answer 15

Net profit / dividend

Question 16

What does a decrease in dividend cover indicate?

Answer 16

that the company is facing an increased risk of not being able to meet its dividend payments as they fall

Question 17

What are some dis adv of financial performance indicators?

Answer 17

• 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

Question 18

What are the four objectives in the balanced score card?

Answer 18

financial perspective
customer perspective
internal business process perspective
learning and growth perspective

Question 19

What are some advs of the balanced score card?

Answer 19

• includes financial measures - reveal results of actions taken
• includes non-financial - drive future financial performance
• external and internal info

Question 20

What are some dis advs of the balanced score card?

Answer 20

• difficult to record and process non-financial data
• info overload
• lack of commitment by senior managers
• conflict between measures
• time and cost

Question 21

How can sustainability be introduced in the balanced scorecard in regard to customer perspective?

Answer 21

taking the interests of sustainibility stakeholders into account e.g., green/environmentally conscious customer

Question 22

How can sustainability be introduced in the balanced scorecard in regard to the internal business process perspective?

Answer 22

How the environment impacts of processes been considered? wastage, recyling

Question 23

How can sustainability be introduced in the balanced scorecard in regard to the learning growth perspective?

Answer 23

Do training and development programmes promote sustainability values. Are innovations resulting in efficiences that reduce pollution?

Question 24

What is the building block model?

Answer 24

A performance measurement system for the service sector based on 3 building blocks

Question 25

What is the 3 building blocks?

Answer 25

Dimensions
standards
rewards

Question 26

What are the 6 dimensions?

Answer 26

Downstream:
- financial performance - TO growth
- competitiveness - market share
Upstream:
- quality of service - service reliability
- flexibility - delivery time
- resource utilisation - productivity
- innovation - new service

Question 27

What are the 3 characteristics of standards?

Answer 27

• ownership
• achievability
• fairness

Question 28

What are the 2 standards that need to be met for employees to be motivated?

Answer 28

• clear
• linked to controllable factors

Question 29

What are some advs of the building block model?

Answer 29

• 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

Question 30

What are some dis adv of the building block model?

Answer 30

• not suitable for non-service organisations
• can be difficult to see the link to strategic objectives

Question 31

What are performance measurements?

Answer 31

provide useful info to management which aid the control of the business

Question 32

Who are the stakeholders?

Answer 32

Loan providers
Government
custoemrs
employees
shareholders

Question 33

What are the important external considerations?

Answer 33

• market conditions
• competitors