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CPA > CPA BEC Flashcards > -Performance Measures > Flashcards

-Performance Measures Flashcards

1
Q

What four perspectives are included in Balanced Scorecard?

A

Balanced Scorecard includes the following perspectives:

  • Financial
  • Customer
  • Internal Business Processes
  • Learning and Growth

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2
Q

Why was Balanced Scorecard created?

A

Balance Scorecard was created to measure performance.

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3
Q

What are Strategy Maps?

A

Strategy Maps are diagrams of strategic cause and effect relationships.

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4
Q

What is a Strategic Initiative?

A

Strategic initiative is a plan to achieve goals.

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5
Q

What measures are used under Value-Based Management?

A

The measures used under Value-Based Management are:

  • Return on Investment
  • Residual Income
  • Spread
  • Economic Value Added
  • Free Cash Flow
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6
Q

How is Return on Investment (ROI) calculated?

A

ROI = Return / Investment

Example:
You Invest $100 to buy a machine that generates $60 in Operating Income
$60 / $100 = 60% ROI

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7
Q

How is Residual Income calculated?

A

Operating Income

- (Required Rate of Return x Invested Capital)

= Residual Income

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8
Q

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

A

RROR is also called Cost of Capital.

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9
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.

It 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%

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10
Q

How is Spread calculated?

A

Spread = ROI - 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.

To calculate:

Economic Value Added

= Operating Income After Tax - (Net Assets x WACC)

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12
Q

How is Free Cash Flow calculated?

A

Operating Income After Tax

+ Depreciation & Amortization

- Capital Expenditures

- Change in Net Working Capital

= Free Cash Flow

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13
Q

What is measured by Six Sigma?

A

Six Sigma measures a product versus its quality goal.

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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?

To calculate:

Current Ratio = 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?

To calculate:

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?

To calculate:

Debt to Total Assets = Total Liabilities / Total Assets

18
Q

What does Gross Margin % tell us? How is it calculated?

A

How profitable is the product after COGS?

To calculate:

Gross Margin = 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)?

To calculate:

Operating Profit Margin = 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?

To calculate:

Times Interest Earned = 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?

To calculate:

Return on Assets = 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 and how is it calculated?

A

How quickly does inventory get sold?

To calculate:

Inventory Turnover = COGS / Average Inventory

24
Q

What is the Quick Ratio and how is it calculated?

A

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

To calculate:

Quick Ratio =

(Current Assets - Inventory) / Current Liabilities

25
Q

What is Average Collection Period and how is it calculated?

A

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

To calculate:

Average Collection Period

= Average AR / Average Sales Per Day

26
Q

What is an Internal Failure?

A

In an internal failure, products have quality defects but are caught BEFORE they leave the warehouse.

27
Q

What is an External Failure?

A

In an external failure, the product reaches the customer, but they are not satisfied with the quality of the product. This includes recalls.

28
Q

What is Appraisal Cost?

A

Appraisal cost includes quality control, testing and inspection costs.

CPA BEC Flashcards (9 decks)

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