Performance Measurements (Ninja Notes) Flashcards
Balanced Scorecard:
Whet are the FOUR perspectives ?
- Financial
- Customer
- Internal Business Processes
- Learning and Growth
Balanced Scorecard:
What are the 3 main elements of FINANCIAL ?
- ROI
- Revenue Growth
- Profitability
Balanced Scorecard:
what are the 2 elements of CUSTOMER ?
- Increase Customers
- Increase Satisfaction
Balanced Scorecard:
3 elements of INTERNAL BIZ PROCESSES ?
- Efficient and Effective Operations
- Improve Quality
- Reduce Defects
Balanced Scorecard:
2 elements of Leary and Growth ?
- Training
- Personnel Development
What are Strategy Maps ?
Diagram of Strategic Cause and Effect
What is Strategy Initiative ?
Plan to achieve Goals
Value Based Management ?
What are the 2 main formulas ?
Return On Investment
Residual Income
FORMULA: Return on Investment
Buy a machine for $100 and it generates $60 in Income
Return / Investment
60/100 = 60%.
FORMULA: Residual Income
Invest / buy $100 machine that generates $60 in Operating income and has 9 required Rate of Return of 10%
Op Income - (Req. ROR × Invested Capital)
60 - (10% x 100) = 50
What is another name for Required Rate of Return ?
Cost of Capital
Cost of Capital: Define and Solve
45% of Capital is debt with interest rate of 9%
55% of Capital is supported by equity and shareholders expect a RoR of 12%
- Cost of Capital is the Weighted Avg. of the interest rates you pay for Capital
- Includes Debt and the ROR your Equity Shareholders Expect
(.45 x .09) + (.55 x .12) = 10.65%
FORMULA: Spread ?
ROI - Cost of Capital
60% ROI - 10.65% Cost of Capital = 49.35% Spread
FORMULA: Economic Value Added ?
Buy a machine the costs $100 and it generates $60 in (after tax) Operating Income and have a WACC of 10%
Op Income (After Tax) - (Net Assets x WACC)
60 - (100 x 10%) = 50 EVA
FORMULA: Free Cash Flow
Op Inc. (after tax)
+ Depr. and Amort.
- Cap. expenditures
- Change working Capital
