Module 9 : Performance Management

Question 1

In a balanced scorecard, the four perspectives are :

Answer 1

 Financial
 Customer
Internal business process Learning and growth

Question 2

performance management and metrics : definition

Answer 2

guarantee our operations are as efficient and effective as possible.

–> These metrics enable managers to identify when adjustments are necessary to maintain the business’s progress.

Question 3

When designing accounting-based performance measures, companies typically employ three steps

Answer 3

1. choose performance measures that align with top management’s financial goals.
2. choose the details of each performance measure in step one.
3. choose a target level of performance and feedback mechanism

Question 4

targets should be…

Answer 4

attainable, still challenging, and they should be transparent

Question 5

Different Concepts of performance management systems

Answer 5

Financial, Multidimensional, Integrated

Question 6

Basis for All Frameworks: Financial Performance and Their Drivers

Answer 6

The Triangle of Financial Performance

Question 7

The Triangle of Financial Performance

Answer 7

1. Profitability indicators –> return
2. Liquidity –> Liquidity indicators
3. Risk –> Safety Indicators

Question 8

Four Measures to evaluate Subunits Performance (DuPont method)

Answer 8

Return on Investment
Residual Income
Economic Value Added
Return on Sales

Question 9

Return on Investment (ROI): definition

Answer 9

is an accounting measure of income divided by an accounting measure of investment
—> profit making

Question 10

Return on Investment (ROI): calculation

Answer 10

EBIT = EBIT/ Revenue x Revenue/ ∅ Invested Capital

Question 11

Return of sales

Answer 11

EBIT/ Revenue
–> in percentage

Question 12

Turn over capital

Answer 12

Revenue/ ∅ Invested Capital

Question 13

DuPont Method of Profitability Analysis

Answer 13

Return on investement
–> It recognizes the two basic ingredients in profit making: increasing income per dollar of revenue and using assets to generate more revenues

Question 14

Residual Income (RI): definition

Answer 14

is an accounting measure of income minus a dollar amount for required return on an accounting measure of investment

is a measure of profitability that calculates the net income generated by a project or business unit after accounting for the cost of capital. It’s used to assess whether a project or division is producing earnings above the minimum rate of return required by investors or management.

Question 15

Residual Income (RI): calculation

Answer 15

Income − (RRR x Investment)

Question 16

Required rate of return (RRR)

Answer 16

times the investment is the imputed cost of the investment

Question 17

Economic Value Added (EVA): definition

Answer 17

EVA is a variation of Residual income used by many companies

Question 18

EVA : calculation

Answer 18

After_tax Operating Income − [WACC x (Total Assets − Current Liabilites)]

Question 19

WACC

Answer 19

weighted-average cost of capital

Question 20

EVA substitutes the following number in the RI calculation

Answer 20

Income: After-tax operating income
Required rate of return: (After-tax) weighted-average cost of capital
(Accounting measure of) Investment: Total assets minus current liabilities

Question 21

Return on Sales (ROS): definition

Answer 21

Known as the income-to-revenues ratio or the sales ratio
–> It is frequently used, simple to compute, and widely understood
–> It does not take into account investment
–> It measures how effectively costs are managed