week 8 Flashcards
problems with financial performance indicators
-lack of information about non- financial and/ or qualitative aspects
-not ensuring long term-sustainable success
-lagging indicator not leading indicator (past performance)
balanced scorecard approach
-integrate financial and non financial measures of performance
- need to identify key performance measures that linked measurements to strategy
philosophy of balanced scorecard
organisations vision and strategy will be achieved by considering 4 perspectives
4 perspectives
-customers perspective
-internal business perspective
-learning and growth perspective
-financial perspective
vision and strategy
financial
customer
internal
learning and growth
scorecard process
for each perspective have to establish specific objectives, targets and measures.
customer perspective
how do customers see us. don’t guess what they want, ask them.
internal business perspective
areas within the business must we focus on to succeed.
learning and growth perspective
a dimension to support future success. organisation must keep learning, increasing capabilities and investment.
final perspective
recognise we need to achieve financial objectives to create value for shareholders.
financial perspective performance measures
operating profit
revenue growth
ROCE
cost reduction
customer perspective performance measure
customer satisfaction
customer retention
new customers
market share
internal business process perspective performance measures
manufacturing cycle time
time to market
new products
quality measures
learning and growth perspective performance measures
employee satisfaction
motivation and empowerment
training
retention
why do small businesses fail
-uncontrolled growth
-insufficient capital
-poor cash management
-improper product pricing
-poor record keeping
business expands
expenses grow = creates demand for more cash within business - stock, equipment, overtime
uses of cash flow forecast
monitor actual cash against forecast
plan investment of cash (cash surplus)
anticipate need for more finance (cash deficit)
working capital cycle equation
=inventory holding days + trade receivable collection days - trade payables payment period
managing working capital
sell inventory quicker
hold less inventory
improve marketing
better stock control
lower price
economic order quantity model (EOQ)
approach to inventory management seeks to minimise the total cost of holding inventory
two opposing sets of costs
-storage and handling costs
-ordering costs
ordering costs
if small amounts of inventory are ordered each time, orders will be placed more frequently, and levels monitored more closely – hence higher ordering costs.
storage and handling costs
if large quantities of inventory are ordered at a time, storage and handling costs will be higher (higher cost of inventory obsolescence or damage, more cash is tied up in inventory).
economic order quantity (EOQ)
√ 2CoD / CH
D= annual demand
Co= the costs of ordering a consignment of inventory
Ch=the cost of holding one unit of inventory for one year
