Week 8 Flashcards
who does management accounting provide information for
managers and internal users of information
does management accounting apply to all business structures including non for profit
yes
how frequently are management account reports prepared
as frequently as needed
are management accounting reports past or current based
current and future focused
do management accounting reports give information about subunits of business
yes they do
are management accounting reports subject to external audits
no they are not
what is management accounting at its core about
wealth creation for a business and shareholders
what is organisational performance management
developing goals to support achievements of entities mission
transforming goals into strategies and measuring performance in achieving goals
what are the financial measures of performance management
profit
return on investment
residual income
what is the balanced scorecard
financial and non financial measures of performance, short term and long term
are financial indicators lagging or leading indicators
lagging because they inform after an event has occured
are non financial measures lagging or leading indicators
leading because they give current information and give insight into likely performance of business
what are the 4 perspectives to the balanced scorecard
1: financial perspective
2: customer perspective
3: internal business process perspective
4: learning and growth perspective
is there a relationship between the 4 perspectives
yes there is financial performance is the result of performance as seen by customers and the internal processes by which customers are serviced both are improved through continuous learning and growth
what is the financial perspective
How shareholder value is created
what are measures are used in the financial perspective
profit, ROI, other ratios
what is the customer perspective
creating value from new and existing customer base
what measures are used in the customer perspective
customer retention, satisfaction
what is the internal perspective
processes that need to exist to deliver customer value and achieve financial goals
what measures are used in the internal perspective
product quality, cycle from order to delivery, labor productivity and waste
what is the learning and growth perspective
continuous improvement improving the 3 other measures
what measures are used in the learning perspective
employee retention rates, employee training
are specific measures in the balanced scorecard
no but they need to be relevant to the industry a business is in
how many measures in each of the 4 perspectives
4
are there trade offs with the balanced scorecard
yes seeking high satisfaction can result in low profits and there can be a trade off between short and long term performance
what are the 3 ways to look at balanced scorecard measures
- comparison to competitors
2: targets set during strategic planning
3: improvements over time
is the balanced scorecard perfect
no it has limitations
what is the benefit of using profit as a financial measure
allows trend measurement and comparison against benchmarks
what are the disadvantages (of profit)
it does not consider investment in business, size of investments and does not allow comparions across divisions
what is ROI
return on investment
how is ROI calculated
profit / invested capital
how can further analysis of the ROI be conducted
by using the Du Pont ROI
what is the Du Pont ROI
return on sales * investment turnover
what is investment turnover and how is it calculated
a ratio that measures the amount of sales generated relative to the level of investment
sales / investment
what is return on sales and how is it calculated
it is the profit margin ratio which measures profit relative to sales.
profit / sales
how can investment turnover be increased
increasing sales revenue or reducing invested capital
how can return on sales be increased
increasing sale price or decreasing expenses
do actions that seek to improve in short term have long term implications
yes they commonly do
what are advantages of ROI
easy to understand, links profit with investment, encourages focus on profits and can be used to evaluate performance of business units relative to others
what are limitations of ROI
encourages short term focus sacrificing long term, deferred asset replacement to keep ROI high, reduces investment that might decrease ROI
what is residual income
profit - (invested capital x imputed interest rate)
what is an imputed interest rate
based on the required rate of return that the business expects of its investments, based on the cost of capital
is the RI expressed in % like the ROI
no it is expressed in real $$ terms
what are advantages of the RI
promotes goal congruency, takes account required rate of return and encourages investment in projects that yield a positve RI
what are limitations of RI
can’t asses relative performance with different size businesses, formula biased in favor of large businesses and can also encourage short term focus
