Performance Measures 1 Flashcards

1
Q

What four perspectives are included in Balanced Scorecard?

A

Financial / Customer / Internal Business Processes / Learning and Growth

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2
Q

Why was Balanced Scorecard created?

A

To measure Performance.

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3
Q

What are Strategy Maps?

A

Diagrams of Strategic Cause and Effect Relationships.

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4
Q

What is a Strategic Initiative?

A

A plan to achieve goals.

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5
Q

What measures are used under Value-Based Management?

A
Return on Investment
Residual Income
Spread
Economic Value Added
Free Cash Flow
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6
Q

How is Return on Investment (ROI) calculated?

A

ROI : Return / Investment

Example: You Invest $100 to buy a machine that generates $60 in Operating Income

$60 / $100 : 60% ROI

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7
Q

How is Residual Income calculated?

A

Operating Income - (Required Rate of Return x Invested Capital) : Residual Income

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8
Q

What is another name for Required Rate of Return (RROR)?

A

RROR is also called ‘Cost of Capital’

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9
Q

What is Weighted Average Cost of Capital (WACC)? How is it calculated?

A

Cost of Capital is the weighted average of the interest rates you pay for your Capital.

Includes Debt and the Rate of Return your Equity Shareholders expect

Example: 45% of your Capital is supported by debt and has an interest rate of 9%. 55% of your Capital is supported by equity and shareholders expect a ROR of 12%

Your Cost of Capital is: (.45 x .09) + (.55 x .12) : 10.65%

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10
Q

How is Spread calculated?

A

Spread : ROI - Cost of Capital

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11
Q

What is the primary point of Economic Value Added? How is it calculated?

A

Investments should exceed costs- with an emphasis on stockholder value.

Economic Value Added : Operating Income After Tax - (Net Assets x WACC)

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12
Q

How is Free Cash Flow calculated?

A
Operating Income After Tax
\+ Depreciation & Amortization
- Capital Expenditures
- Change in Net Working Capital
\: Free Cash Flow
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13
Q

What is measured by Six Sigma?

A

It measures a product versus its quality goal.

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14
Q

What is the Asset Turnover Ratio?

A

Sales / Average Assets

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