Performance Management Flashcards
Partial Productivity Ratio (PPR)
Quantity of output / Quantity of input
= how much of each output unit is produced by each unit of input
Total Factor Productivity Ratio (TFP)
Quantity of output / Cost of all inputs used
= how much of each output unit is produced by total units of input
Contribution margin
Revenue - variable costs
Controllable margin
Revenue - variable costs - controllable fixed costs
Controllable fixed costs
Costs that a manager can influence in less than one year (i.e. advertising and sales promotion)
Contribution by SBU
Revenue - variable costs - controllable fixed costs - noncontrollable fixed costs
Elements of a balanced scorecard
FICA
Financial
Internal business processes
Customer satisfaction
Advancement of innovation and human resource development
Conformance Costs
Costs of ensuring conformance with quality standards are prevention and appraisal costs
Prevention Costs
Prevent the production of defective units
Examples of prevention costs
Employee training Inspection expenses Preventive maintenance Redesign of product Redesign of processes Search for higher quality suppliers
Appraisal Costs
Incurred to discover and remove defective parts before they are shipped to the customer or next department
Examples of appraisal costs
Statistical quality checks
Testing
Inspection
Maintenance of the laboratory
Nonconformance costs
Either internal or external costs
Costs in the form of opportunity costs
Internal failure costs
Costs to cue a defect discovered before the product is sent to the customer
Examples of internal failure costs
Rework costs Scrap Tooling changes Costs to dispute Cost of the lost unit Downtime
External failure costs
Costs to cure a defect discovered after the product is sent to the customer
Examples of external failure costs
Warranty costs Costs to return the good Liability claims Lost customers Reengineering an external failure
ROI
Profit margin / Investment turnover
Profit Margin
Profit / Sales
Investment turnover
Sales / Average net assets OR Invested capital
ROA
Sales / Average total assets
ROE
Net income / equity
DuPont ROE (3)
= Net profit margin * Asset turnover * Financial leverage
=(Net income / Sales) *
(Sales / Assets) *
(Assets / Equity) *
Extended DuPont ROE (6)
= Tax burden * Interest burden * Net profit margin * EBIT margin * Asset turnover * Financial leverage =(Net income / Pretax income) * (Pretax income / EBIT) * (EBIT / Sales)* (Net income / Sales) * (Sales / Assets) * (Assets / Equity) *
Residual Income
Net income - (Net BV of Equity * Hurdle Rate)
Economic Value Added
NOPAT - (Investment * WACC)
EVA Decisions
Positive = meets standards Negative = doesn't meet standards
