11 Performance measurement and control Flashcards
How do you calculate ROCE?
Net profit / capital employed
What is capital employed?
Total assets less current liabilities or total equity + long terms be
What kind of ROCE score do you want ?
A high one which can be achieved by increasing profit
How do you calculate asset turnover?
Turnover / capital employed
What kind of asset turnover do you want?
A high one
How do you calculate current ratio?
Current assets / current liabilities
What does the current ratio show?
Company’s ability to meet its short term liabilities as they fall due
How do you calculate quick ratio?
Current assets - inventory / current liabilities
How do you calculate inventory holding period?
Inventory / cost of sales x 365
How do you calculate debtor days?
Receivables / turnover x365
How to work out creditor days?
Payable /purchases x365
How to calculate gearing?
Debt / equity
What does a high level of gearing show?
That the company relies heavily on debt to finance debt its long term needs
How to work out interest cover?
Operating profit / finance cost
How to work out dividend cover?
Net profit / dividend
What does a decrease in dividend cover show?
Increased risk of not being able to make its dividend payments to shareholders
What are the four perspectives of the balance score card?
Customer, internal, innovation and learning, and financial
What are the three areas on the building block model?
Dimensions
Standards
Rewards
What is meant by dimensions in the building block model?
Dimensions are the goals for the business and suitable measures must be developed to measure each performance dimensions
What are the six dimensions
Profit Competitiveness Quality Resource utilisation flexibility Innovation
What are standards?
Targets set for the metrics chosen from the dimensions
What are the three standards?
Ownership
Achievability
Equity
What is meant by rewards?
The reward system should be clearly understood by the staff and ensure their motivation
What are the three rewards
Clarity
Motivation
Controllability
