Performance Indicator Formulas Flashcards
How to calculate ROCE?
Operating profit / capital employed x 100
Where CE = net assets
Do you want a high or low ROCE?
High
How to calculate gross profit margin?
Gross Profit / Revenue x 100
Do you want higher or lower GPM?
Higher
How to calculate operating profit margin?
Operating profit / Revenue x 100
How to calculate expenses as % revenue?
Expense item / revenue x 100
Lower or higher expenses as a % revenue?
LOWER
How to calculate asset turnover?
Revenue / net assets
answer is in x times
How to calculate the working capital cycle?
Inventory days + receivables days - payable days
How to calculate the inventory holding period in days?
Inventory / cost of sales x 365
How to calculate TR collection period in days?
Trade receivables / Revenue x 365
How to calculate TP payment period?
Trade payables / purchases (or CoS)
X 365
What factors have an impact on the indicators?
Learning effect
Economies of scale
What are the limitations of financial performance indicators?
Need a comparator to judge
Adjustments may need to be made for inflation.
Year end values used which is often not reflective of whole year.
Other factors such as customer satisfaction are ignored
Short termism
What are the 4 groupings for non financial performance indicators?
Profitability
Efficiently
Productivity
Quality
