Revised 1 - Performance Measures

Question 1

What are Strategy Maps?

Answer 1

Diagrams of Strategic Cause and Effect Relationships.

Question 2

What is a Strategic Initiative?

Answer 2

A plan to achieve goals.

Question 3

What measures are used under Value-Based Management?

Answer 3

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

Question 4

How is Spread calculated?

Answer 4

Spread : ROI - Cost of Capital

Question 5

How is Free Cash Flow calculated?

Answer 5

Operating Income After Tax
\+ Depreciation & Amortization
- Capital Expenditures
- Change in Net Working Capital
\: Free Cash Flow

Question 6

What is measured by Six Sigma?

Answer 6

It measures a product versus its quality goal.

Question 7

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

Answer 7

How profitable is the product after COGS?

Gross Margin : Gross Profit / Net Sales

Question 8

What does Operating Profit Margin tell us? How is it calculated?

Answer 8

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

Operating Profit Margin : Operating Profit / Net Sales

Question 9

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

Answer 9

Can the company make their interest payments?

Times Interest Earned : EBIT / Interest Expense

Question 10

What does Return on Assets tell us? How is it calculated?

Answer 10

What % return are the assets generating?

ROA : NI (net of interest & taxes) / Average Total Assets

Question 11

How is Market/Book ratio calculated?

Answer 11

Market Value of Common Stock / Book Value of Common Stock