Chapter 5 - Performance Indicators Flashcards
What is benchmarks?
Standards or targets set for one or more areas of activity and should be related to what is important to the organisation.
What does quantitative data mean?
Data which can be stated in numbers which can be split into financial or monetary data.
Examples of financial quantitative data
1) turnover
2) selling prices
3) variances
4) costs
5) costs per unit/hour
Examples of non financial quantitative data?
1) production units
2) number of rejects
3) number of complaints
4) number of orders placed
What does qualitative data mean?
Data which cannot be put in numerical terms. It consists of peoples judgement and opinions which is used for performance measuring.
What is the gross profit margin (%) formula?
Gross profit / sales X 100%
What is the net profit margin formula?
Net profit / sales X 100%
What is the operating profit margin formula?
Operating profit / Sales X 100%
Examples of performance measures?
1) sales
2) profit
3) costs
4) cost per employee
5) cost per hour
6) cost per unit of output
Why are performance indicators used?
1) to identify a problem
2) to control expenses
3) measuring the performance of an individual
4) to create plans within an organisation
What is ‘return on capital employed’?
Money being used to finance the running costs of the business which is represented by the owners capital and long term liabilities.
What is the ‘return on capital employed’ formula?
Operating profit / (non current assets + net current assets) X 100%
Or
Operating profit / (capital + long term liabilities) X 100%
What is the ‘return on net assets’ formula?
Operating profit / net assets X 100%
What is value added?
The difference between value of output (sales) and value of inputs (materials/bought in services).
Value added = sales - (cost of materials used and bought in services)
What is asset turnover and the formula?
The number of times the value of the assets has been obtained in turnover.
Asset turnover = turnover(sales) / (non current assets + net current assets)
What is working capital?
The part of a business which circulates between inventory, receivables, cash and trade payables.
Current ratio meaning and formula
This shows the number of times the current liabilities are covered by the current assets.
Current assets / current liabilities
Quick ratio (acid test) meaning and formula
This ratio is used to compare the current assets other than inventory with the current liabilities.
(Current assets - inventory) / current liabilities
Inventory holding meaning and formula
This shows how well the stock is being managed or the length of time taken to sell the inventory
Inventory / cost of goods sold X 365
Inventory turnover meaning and formula?
This shows the number of times the inventory is sold in the year.
Cost of sales / inventory
What is gearing and the formula?
What proportion of total funding comes from sources that demand regular payments of interest or dividends.
Debt / (debt + equity) X 100
What is gearing (debt to equity) and the formula?
Compares the loans or debts directly to he equity instead of capital employed.
Debt / (Share capital + reserves) X 100
What is the main and individual formulas for control ratios?
(ECA)
Activity ratio = capacity X Efficiency
Efficiency = standard hrs for actual production / Actual hours
Capacity = Actual hours / budgeted hours
Activity(Volume) = standard hours for actual production / budgeted hours
Is it better to have low or high working capital cycle and why??
High - this indicates greater investment in working capital.
