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BEC > Performance Measures > Flashcards

Performance Measures Flashcards

1
Q

Why was Balanced Scorecard created?

A

To measure Performance.

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2
Q

What four components are included in Balanced Scorecard?

A
  • Strategic objectives - and what is critical for success
  • Performance measures
  • Baseline performance
  • Targets
  • Strategic initiatives - key action programs required
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3
Q

What four perspectives are included in Balanced Scorecard?

A
  • Financial
    • ROI- Revenue Growth- Profitability
  • Customer
    • Increase Customers- Increase Satisfaction
  • Internal Business Processes
    • Efficient and Effective Operations- Improve Quality- Reduce Defects
  • Learning & Growth
    • Training- Personnel Development
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4
Q

What are Strategy Maps?

A

Diagrams of Strategic Cause-and-Effect Relationships between strategic objectives

  1. Financial
  2. Customer
  3. Internal Process
  4. Learning and Growth (EE or R&D)
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5
Q

What is a Strategic Initiative?

A

A plan to achieve goals.

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6
Q

What measures are used under Value-Based Management?

A

Return on Investment

Residual Income Spread

Economic Value Added

Free Cash Flow

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7
Q

Dupont Model

Financial

A

ROI = (Net Inc) / (Avg Assets)

[(Net Inc) / (Net Sales)] * [(Net Sales) / (Avg Assets)]

Return on Sales * Asset Turnover

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8
Q

How is Residual Income calculated?

Financial

A

Op Inc - (Required RoR x Invested Capital)

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9
Q

How is Spread calculated?

A

ROI - Cost of Capital

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10
Q

What is another name for Required Rate of Return (RROR)?

A

RROR is also called ‘Cost of Capital’

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11
Q

What is the primary point of Economic Value Added?

How is it calculated?

A

Investments should exceed costs- with an emphasis on stockholder value.

Net Op Inc After Tax - (Net Assets x WACC)

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12
Q

What is Weighted Average Cost of Capital (WACC)?

How is it calculated?

A

Cost of Capital is the weighted average of the interest rates you pay for your Capital.

Includes Debt and the Rate of Return your Equity Shareholders expect

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13
Q

How is Free Cash Flow calculated?

A

Net Op Inc After Tax

+ Depreciation & Amortization

  • Capital Expenditures
  • Change in Net Working Capital
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14
Q

What is the Asset Turnover Ratio?

A

Sales / Average Assets

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15
Q

What does the Current Ratio tell us? How is it calculated?

A

Can the company pay their short-term liabilities?

Current Assets / Current Liabilities

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16
Q

What does the Debt to Equity Ratio tell us?

How is it calculated?

A

How is the company financing its capital?

Debt to Equity Ratio = Total Debt / Total Equity

17
Q

What does the Debt to Total Assets ratio tell us?

How is it calculated?

A

What proportions of the company’s assets are encumbered with debt?

Total Liabilities / Total Assets

18
Q

What does Gross Margin % tell us?

How is it calculated?

A

How profitable is the product after COGS?

Gross Profit / Net Sales

19
Q

What does Operating Profit Margin tell us?

How is it calculated?

A

How profitable is the product after all expenses (except interest and taxes)?

Operating Profit / Net Sales

20
Q

How is Times Interest Earned calculated and what does it mean?

A

Can the company make their interest payments?

Earnings Before Tax & Interest / Interest Expense

21
Q

What does Return on Assets tell us?

How is it calculated?

A

What % return are the assets generating?

Net Income (net of interest & taxes) / Average Total Assets

22
Q

How is Market/Book ratio calculated?

A

Market Value of Common Stock / Book Value of Common Stock

23
Q

What is Inventory Turnover

How is it calculated?

A

How quickly does inventory get sold?

COGS / Average Inventory

24
Q

What is the Quick Ratio and how is it calculated?

A

It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)

(Current Assets - Inventory) / Current Liabilities

25
Q

What is Average Collection Period

how is it calculated?

A

How many days does it take the company to collect payment on A/R?

Average AR / Average Sales Per Day

26
Q

What is measured by Six Sigma?

A

It measures a product versus its quality goal.

27
Q

Cost of Quality

A

Prevention Cost - do it the first time

Appraisal Cost - finding

Internal Failure - fixing

External Fairlure

28
Q

What is Appraisal Cost?

A

Quality control- testing & inspection costs.

29
Q

What is an Internal Failure?

A

Products have quality defects- but are caught BEFORE they leave the warehouse.

30
Q

What is an External Failure?

A

Product reaches the customer- but they are not satisfied with the quality of the product.

This includes recalls.

31
Q

Limitations of Financial Ratios

A
  1. Other firms might not be comparable
  2. Industry avg might not be reliable
  3. Calculations vary
  4. Estimates distort results
  5. Financial measures only, not balanced

BEC (9 decks)

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