Performance Measures and Management Techniques Flashcards
Performance Measures and Management Techniques
What are the components of a Balanced Scorecard?
Performance Measures and Management Techniques
Components of a Balanced Scorecard
1) Strategic Objectives
2) Performance Measures
3) Baseline Performance
4) Targets
5) Strategic Initiatives
Performance Measures and Management Techniques
What are the Four Perspectives of a Balanced Scorecard?
Performance Measures and Management Techniques
Four Perspectives of a Balanced Scorecard
- Financial Perspective
- Customer Perspective
- Intern Business Processes Perspective
- Learning and Growth.
Performance Measures and Management Techniques
How is residual income calculated?
Performance Measures and Management Techniques
RI = Income - Required Rate of Return
RI = Net Income - (Required Rate of Return x Invested Capital)
Performance Measures and Management Techniques
Calculate Return on Assets
Performance Measures and Management Techniques
Return on Assets = Net Income
__________________
Average Total Assets
Performance Measures and Management Techniques
Calculate the Receivables Collection Period
Performance Measures and Management Techniques
Recv Collection Period = Average Receivables
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Credit Sales per Day
Performance Measures and Management Techniques
Calculate Profit Margin
Performance Measures and Management Techniques
Profit Margin = Net Income
___________
Net Sales
Performance Measures and Management Techniques
Define Quick Ratio
Performance Measures and Management Techniques
Quick Ratio = Current Assets- Inventory
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Current Liabilities
Performance Measures and Management Techniques
Define Operating Profit Margin
Performance Measures and Management Techniques
Operating Profit Margin = (Operating Profit/ Sales)
Operating Profit = Sales- COGS - General/ admin exp
Do not include taxes/ interest expense in operating profit
Performance Measures and Management Techniques
Define Investment Turnover
Performance Measures and Management Techniques
Investment Turnover = Sales/ Average Investment
Performance Measures and Management Techniques
Define Inventory Turnover
Performance Measures and Management Techniques
Inventory Turnover = COGS/ Average Inventory
Performance Measures and Management Techniques
Define Gross Margin
Performance Measures and Management Techniques
Gross Margin = Gross Profit / Net Sales
Gross Profit= Net Sales - COGS
Performance Measures and Management Techniques
Define Free Cash Flow (Think Statement of Cash Flows)
Performance Measures and Management Techniques
Net Operating Income after taxes
+ Depreciation Expense
- Change in Net Working Capital
- Capital Expenditures
= Free Cash Flow
Performance Measures and Management Techniques
Define Economic Value Added Amount (EVA)
Performance Measures and Management Techniques
EVA = Net Op Profit after taxes- After Tax WACC x Invested Capital
Performance Measures and Management Techniques
Define Debt Ratio
Performance Measures and Management Techniques
Debt Ratio = Amount Debt Finance / Total Assets
Performance Measures and Management Techniques
Define Book Value per Share
Performance Measures and Management Techniques
Book Value per Share = Common Stockholders Equity / Outstanding Shares
Performance Measures and Management Techniques
Define Average Collection Period
Performance Measures and Management Techniques
Average Collection Period = Average AR/ Avg Sales per Day
Performance Measures and Management Techniques
Define Average A/R Balance
Performance Measures and Management Techniques
Average A/R Balance = (Credit Sales per Day) x (Average Collection Period)
Performance Measures and Management Techniques
Define Asset Turnover
Performance Measures and Management Techniques
Asset Turnover = Sales/ Total Assets
Performance Measures and Management Techniques
Define Times Interest Earned
Performance Measures and Management Techniques
Times Interest Earned = EBIT/ Interest Expense
Performance Measures and Management Techniques
Define Interest rate spread (%)
Performance Measures and Management Techniques
Spread (%) = ROI - Cost of Capital
Interest rate spread is the difference between the return on investment and the required rate of return (cost of capital)
Performance Measures and Management Techniques
Define Return on Investment
Performance Measures and Management Techniques
ROI = Operating Profit / Investment
Performance Measures and Management Techniques
Define Return on Investment
Performance Measures and Management Techniques
ROI = (Sales/ Investment) x (Net Income/ Sales)
SINUS
ROI = Asset Turnover x Profit Margin
Performance Measures and Management Techniques
Define Return on Equity
Performance Measures and Management Techniques
Return on Equity = Net Income/ Amount Equity Invested
Performance Measures and Management Techniques
Define Return on Investment (Du Pont)
Performance Measures and Management Techniques
ROI = NI / Total Assets
= (NI/ Sales) x (Sales/ Avg Investment)
= Return on Sales x Asset Turnover Ratio
Performance Measures and Management Techniques
Define Throughput contribution per unit
Performance Measures and Management Techniques
Throughput contribution per unit =
Unit Revenue- Unit Direct Materials
Performance Measures and Management Techniques
What are the requirements when designing a Performance Management System?
Performance Measures and Management Techniques
Requirements when designing a Performance Management System
- Requires an understanding on how system will be used (compensation, resource allocation, business unit performance)
- Should reflect strategy of company
- Should be strategic ( communicate org goals, motivate management)
- Represent economic reality (clear and accurate measure)
- Should be sensitive to factors within manager’s control
