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Accounting Based Indicators > Samlat viktigt > Flashcards

Samlat viktigt Flashcards

1
Q

5 phases that characterize Benchmarking

A
  • Identify the strategic objectives
  • Performance orientation
  • Process orientation
  • Sample selection
  • Leader-, sector- or internal benchmarking
  • Involvement modality
  • Unconsious
  • Consious
  • Performances of choice for the comparison
  • Definition of scope
  • Definition of the measurement system
  • Data correction
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2
Q

What is Consolidated Financial Statement and different theories?

A

The financial statement of a group of companies.

  • Proprietary theory - Views the company as an extension of its owners.

Con: Does not show details on invested capital and minority interest.

  • Entity theory - Views the group as a seperate economic entity

Pro: CFS is complete, minority interest is shown
Con: Result of the group can be overestimated.

  • Parent company theory - Adopts the view point of parent company shareholders.

Parent dont own assets or has responsability for liabilities, but can control them.

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3
Q

Operational budget:

A
  • Revenues budget
    Budgetes the revenues, based on for example historical data, season etc.
  • Production budget
    Budgets quantity and volumes needed for the production.

Ex. Do we need to outsource?

  • Cost of goods sold
  • Direct material consumption
  • Direct labor
  • Manufacturing overhead
  • Period costs budget (This one has Incremental approach and Zero based budget approach)
  • Selling
  • Marketing
  • Administrative
  • General costs
  • R&D
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4
Q

What 3 budgets is included in Master Budget

A

Operation budget
Capital expenditure budget
Financial budget

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5
Q

Financial budgets

A

Includes:

The budget cash flow statement

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6
Q

Capital expenditure budget

A

Outlines anticipated capital exependiture:

Example buying equipment or building a new store.

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7
Q

Exemplify: Financial planning - Long term

A
  • Bank loan / Syndicated bank loan
  • Corporate bonds
  • Leasing
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8
Q

Exemplify: Financial planning - short term

A
  • Bridge/bank/syndicated bank loan
  • Lines of credit
  • Factoring
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9
Q

Tell me about corporate bonds

A

Securitys that corporations can sell on the market, meaning individuals or corporation can lend money in exchange of interest or just repayment over time.

Hybrid bonds: Mix of equity and dept, can swap from bond- to share-holder
Zero coupon: The bond pays no coupon
Coupon: Bond pays coupons over time. Rate can be fixed or floating.

Pros:
Priority in case of default
Often higher interest rate
If you cant take bank loan this is an option.

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10
Q

Two categories of leasing

A

Operating leasing - Shorter period than life of asset

Financial leasing - Generally last whole asset life

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11
Q

What is Financial planning?

A

Choosing the best source of financing for the company

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12
Q

What is Value based indicators?

A

VBI aim at controlling enterprises, measuring the creation of value and its risks.

Four type of indicators:

  • Direct measurement of present value
  • Indirect measurement of present value
  • Relative valuation
  • Value based proxies
  • Risk value indicators
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13
Q

Value based proxies

A
  • Total Business Return
    TBR = V(1) + Net Cash Flow (1)
  • Market Value Added
    MVA = Market value - Invested capital
  • Total shareholder return
    TSR = (Variance in market value + Dividends) / Initial market value
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14
Q

Risk value indicators

A
  • Value at risk (VAR)
  • Economic capital
  • Risk-adjusted Return indicators
  • RORAC, RAROC, RARORAC
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15
Q

Main steps in Relative valuation?

A

Main steps:
- Defining comparable companies ( Should be companies which are competing on our same values )

  • Defining possible multiples (Convert asset values into standardised values. Absolute prices cannot be compared)
  • Analysing multiples. To choose the best multiples.
  • Applying multiples.
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16
Q

Relative valuation - Possible multiples

A

Asset side:

  • EV/EBIT
  • EV/EBITDA
  • EV/FCFF
  • EV/SALES

Equity side:

  • P/E
  • PEG
  • P/FCFE
  • P/BV
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17
Q

What is Value drivers?

A

Value drivers refer to indicators which provide early signals of value creation.

Three categories:

  • Non financial performance indicators
  • Non financial resource state
  • Drivers of risk
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18
Q

Value drivers: Non financial performance indicator - Time

A

Internal (Time for performing specific processes):

  • Highlighting non value added activities
  • Throughput time
  • Time Efficiency

External :

  • Delivery time
  • Time to market
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19
Q

Value drivers: Non financial performance indicator - Quality

A

External quality: Products

  • Quality of design
    • How the product meet needs and wants
  • Customer responsiveness
    • Capability of product to respond to needs and wants of customers
  • Conformance quality
    • Performance of a product/service relative to its design and product specifications

Internal quality: Process
- Measure the failure in the production and the delivery process

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20
Q

How to map performances and customer satisfaction to understand how we performe?

A 
Use a map consisting:
Concentrate here
Keep up the good work
Low priority
Possible overkill
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21
Q

Value drivers: Non financial performance indicator - Productivity

A

Productivity = Output / Input

Measuring outputs:

Production type / Output indicator
One-product / Quantity
Different, but homogeneous products / Quantity with physical weights
Diversified products / “Standard” sales

Measuring inputs:

Partial productivity = Output is confronted against each production factor
Global productivity = Output is confronted against a weighted average of production factors

22
Q

Value drivers: Non financial performance indicator - Flexibility

A

Capability of a company of answering to changes with limited cost and time.

Different types:
Entity of change = Small, Range, Large
Nature of change = Quality (Product, Production, Operation), Quantity (Volume, Mix, Expansion)

23
Q

Value drivers: Non financial performance indicator - Environment and Society - Sustainability

A

Cost drivers: Energy consumptions, fines
Revenue drivers: CO2 emissions, Reputational effect

GRI Standard (Global Reporting Initiative)

KPI examples: Use of materials, energy consumption

Carbon footprint

24
Q

Value drivers: Non Financial measure - Resource Indicators

A

Aims at capturing potentialities for enterprises to innovate and grow
Cover both tangible and intangible assets

Four types of resources:

  • Financial
  • Technological
  • Human and organizational
  • Image and reputation

Three types of measures:

  • Quality
  • Quantity
  • Accessibility
25
Q

Value drivers: Non Financial measure - Intellectual capital

A

Is referred as a resource including three dimensions:

  • Human capital: Skill, education.
  • Relation capital: relationships with customers and suppliers, reputation.
  • Internal structure capital: intangible assets and knowledge embedded in organisational structures and processes (include patents, technology, basically whats left when the staff has gone home)
26
Q

Value drivers: Non Financial measure - Human Resources

A

Human capital index

27
Q

Value drivers: Non Financial measure - Image and reputation - Brand Equity

A

Potential of the brand (how the brand is different from others)

28
Q

Characteristics of non-financial performance and resource indicators

A

På sida 94 står det vad termerna betyder. Dessa är tagna från sida 103.

  • Timeliness: High, main advantage of these measures
  • Long term orientation: can be high
  • Measurability: possible ambiguity (oklarhet, mångtydighet)
  • Completeness
  • Precision
29
Q

Risk drivers: Key risk indicators

A
  • Objective or subjective

* Single or composite

30
Q

Target setting is related to these two parts:

A

Budgeting

Risk and performance measurement

31
Q

Targets are used for:

A

Decision making

Motivation

32
Q

Performance Management Systems support the target process by:

A

Defining reference performance values -> Budgeting

Predicting performance variability and events -> Enterprise-wide Risk Management (ERM) system

Checking variance between forecast and actual values

33
Q

ERM model areas of risk:

A

Strategic
Operations
Reporting
Compliance

34
Q

ERM eight elements:

A 
Internal environment
Objective setting
Event identification
Risk assessment
Risk response
Control activities 
Information and communication
Monitoring
35
Q

Indicators which may come out from ERM are:

A
  • Risk value proxies

- Key risk indicators

36
Q

Key risk indicators typology

A
  • Objective or subjetive

- Single or composite

37
Q

Three types of operational centers

A
  • Cost centers: Relation between output and required resources, no direct link to external market
  • Revenue centers: Directly interact with external market
  • Expense centers: Responsible for period cost. No direct link with external market.
38
Q

Cost centers

A

They are:

  • Responsible in the use of resources
  • Not responsible in determining the output level

C_tot=C_variable * Q + C_fixed

Problems:
Cannot control variances
Short term oriented

Solutions:
ABM

39
Q

Variance analysis

A

First level:
Total variance = Actual cost - Budgeted cost

Second level example:
Direct labour cost = Cost per unit (€/u) * Volume (u)

Third level:
Direct labor unit cost = hourly rate (€/h) * direct labour use (h/u)

40
Q

Revenues centers

A

Responsibility limited to the output.

Revenues = price (p) * Volume (V)

Problems: Cannot control variations in price and quantity sold
Yearly revenues are not long term indicators

41
Q

Expense centers

A

Output not easily identifiable with money.

Control on performance is not possible.

42
Q

Name a problem of Corporate cost allocation

A

Occurs when there are some resources which belong to the corporate, but these resources are employed by this business unit.

43
Q

Four essential purposes of corporate cost allocation:

A
  • To provide information for economic decisions
  • To motivate managers and other employees
  • To justify cost or compute reimbursement
  • To measure income and assets for reporting to external parties
44
Q

How to allocate cost? 3 possibilites

A

No allocation, complete allocation, partial allocation

45
Q

A transfer pricing system is required for several purposes, which are they?

A
  • to provide information that motivates divisional managers to make good economic decisions
  • to communicate data that will lead to goal-congruent decisions
  • to provide information for evaluating divisional performances
  • to ensure divisional autonomy
  • to plan tax
46
Q

Transfer pricing methods

A
  • Market-based transfer prices
  • Cost based plus mark up transfer prices
    • Full actual cost
    • Full standard cost
    • Marginal cost
  • Negotiated transfer prices
  • Dual transfer prices
47
Q

Market-based transfer prices

A

Refers to the market outside

Problems:
Non-homogeneous markets
High variability of prices
Strategic divisions

48
Q

Definition of a group

A
  • Proprietary theory : Views the company as an extension of its owners
  • Entity theory: Views the group as a separate economic entity
  • Parent company theory: View the point of parent company shareholders
49
Q

Required steps for consolidation

A
  • Harmonisation of accounting principles between companies
  • Harmonisation of the accounting period (no longer than 3 months)
  • Elimination of equity investment
  • Elimination of intragroup transactions
  • Definition of the value of assets and liabilities of the group

Two ways:
Proportionate consolidation

Line by line basis consolidation

50
Q

Why benchmarking?

A

To understand strengths and weaknesses
To improve knowledge
To improve efficiency

Accounting Based Indicators (7 decks)

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