Performance Measures Flashcards
Financial / Customer / Internal Business Processes / Learning and Growth
Performance Measurement
To measure Performance.
Performance Measurement
Diagrams of Strategic Cause and Effect Relationships.
Performance Measurement
A plan to achieve goals.
Performance Measurement
Return on Investment Residual Income Spread Economic Value Added Free Cash Flow
Performance Measurement
ROI : Return / Investment
Example: You Invest $100 to buy a machine that generates $60 in Operating Income
$60 / $100 : 60% ROI
Performance Measurement
Operating Income - (Required Rate of Return x Invested Capital) : Residual Income
Performance Measurement
RROR is also called ‘Cost of Capital’
Performance Measurement
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
Example: 45% of your Capital is supported by debt and has an interest rate of 9%. 55% of your Capital is supported by equity and shareholders expect a ROR of 12%
Your Cost of Capital is: (.45 x .09) + (.55 x .12) : 10.65%
Performance Measurement
Spread : ROI - Cost of Capital
Performance Measurement
Investments should exceed costs- with an emphasis on stockholder value.
Economic Value Added : Operating Income After Tax - (Net Assets x WACC)
Performance Measurement
Operating Income After Tax \+ Depreciation & Amortization - Capital Expenditures - Change in Net Working Capital \: Free Cash Flow
Performance Measurement
It measures a product versus its quality goal.
Performance Measurement
Sales / Average Assets
Performance Measurement
Can the company pay their short-term liabilities?
Current Ratio : Current Assets / Current Liabilities
Performance Measurement
How is the company financing its capital?
Debt to Equity Ratio : Total Debt / Total Equity
Performance Measurement
What proportions of the company’s assets are encumbered with debt?
Debt to Total Assets : Total Liabilities / Total Assets
Performance Measurement
How profitable is the product after COGS?
Gross Margin : Gross Profit / Net Sales
Performance Measurement
How profitable is the product after all expenses (except interest and taxes)?
Operating Profit Margin : Operating Profit / Net Sales
Performance Measurement
Can the company make their interest payments?
Times Interest Earned : Earnings Before Tax & Interest / Interest Expense
Performance Measurement
What % return are the assets generating?
Return on Assets : Net Income (net of interest & taxes) / Average Total Assets
Performance Measurement
Market Value of Common Stock / Book Value of Common Stock
Performance Measurement
How quickly does inventory get sold?
Inventory Turnover : COGS / Average Inventory
Performance Measurement
It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)
Quick Ratio : (Current Assets - Inventory) / Current Liabilities
Performance Measurement
How many days does it take the company to collect payment on A/R?
Average Collection Period : Average AR / Average Sales Per Day
Performance Measurement
Products have quality defects- but are caught BEFORE they leave the warehouse.
Performance Measurement
Product reaches the customer- but they are not satisfied with the quality of the product.
This includes recalls.
Performance Measurement
Quality control- testing & inspection costs.
Performance Measurement
