Strategic Management Accounting

Question 1

What are the main differences between financial and non-financial KPIs?

Answer 1

Financial indicators focus on monetary metrics and past outcomes, whereas non-financial indicators provide real-time, qualitative insights and focus on future potential and operational performance.

Question 2

What are the advantages of using the Balanced Scorecard in strategic management?

Answer 2

• Integrates financial and non-financial measures
• Aligns daily operations with long-term strategy and improves both strategic and operational decision-making

Question 3

What are the limitations of traditional Financial KPIs?

Answer 3

• May not capture all aspects of business performance
• Often overlook long-term potential
• Can encourage short-termism to the detriment of long-term strategic goals

Question 4

What are the four perspectives of the Balanced Scorecard?

Answer 4

• Financial
• Customer
• Internal business process
• Learning and growth

Question 5

What does Return on Capital Employed (ROCE) measure, and what is its formula?

Answer 5

ROCE measures return from capital employed in the business.
Formula:
ROCE = Operating Profit/ Capital Employed

Question 6

What does Gross Profit Margin (GPM) measure, and what is its formula?

Answer 6

GPM indicates the profitability of core activities excluding overhead.
Formula:
GPM = (Gross Profit/ Revenue) X 100

Question 7

What does Net Profit Margin (NPM) measure, and what is its formula?

Answer 7

NPM measures the percentage of profit a company earns relative to its total value.
Formula:
NPM = (Net Profit/ Revenue) X 100

Question 8

What does Asset Turnover measure, and what is its formula?

Answer 8

AT measures a firm’s efficiency at using its assets to generate sales.
Formula:
AT = Revenue/AVG Total Assets

Question 9

What does the Current Ratio measure, and what is its formula?

Answer 9

CR is the ability of a company to pay off its short-term liabilities with its short-term assets.
Formula:
CR = Current Assets/ Current Liabilities

Question 10

What does the Quick Ratio measure, and what is its formula?

Answer 10

QR is the ability of a firm to meet short-term obligations with its most liquid assets.
Formula:
QR = Current Assets - Inventory/ Current Liabilities

Question 11

What are some examples of non-financial KPIs?

Answer 11

• Service delivery times
• Customer satisfaction scores
• Product Quality levels
• Employee turnover rates