Flashcards in Performance Measures Deck (28):
Financial / Customer / Internal Business Processes / Learning and Growth
To measure Performance.
Diagrams of Strategic Cause and Effect Relationships.
A plan to achieve goals.
Return on Investment
Economic Value Added
Free Cash Flow
ROI : Return / Investment
Example: You Invest $100 to buy a machine that generates $60 in Operating Income
$60 / $100 : 60% ROI
Operating Income - (Required Rate of Return x Invested Capital) : Residual Income
RROR is also called 'Cost of Capital'
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%
Spread : ROI - Cost of Capital
Investments should exceed costs- with an emphasis on stockholder value.
Economic Value Added : Operating Income After Tax - (Net Assets x WACC)
Operating Income After Tax
+ Depreciation & Amortization
- Capital Expenditures
- Change in Net Working Capital
: Free Cash Flow
It measures a product versus its quality goal.
Sales / Average Assets
Can the company pay their short-term liabilities?
Current Ratio : Current Assets / Current Liabilities
How is the company financing its capital?
Debt to Equity Ratio : Total Debt / Total Equity
What proportions of the company's assets are encumbered with debt?
Debt to Total Assets : Total Liabilities / Total Assets
How profitable is the product after COGS?
Gross Margin : Gross Profit / Net Sales
How profitable is the product after all expenses (except interest and taxes)?
Operating Profit Margin : Operating Profit / Net Sales
Can the company make their interest payments?
Times Interest Earned : Earnings Before Tax & Interest / Interest Expense
What % return are the assets generating?
Return on Assets : Net Income (net of interest & taxes) / Average Total Assets
Market Value of Common Stock / Book Value of Common Stock
How quickly does inventory get sold?
Inventory Turnover : COGS / Average Inventory
It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)
Quick Ratio : (Current Assets - Inventory) / Current Liabilities
How many days does it take the company to collect payment on A/R?
Average Collection Period : Average AR / Average Sales Per Day
Products have quality defects- but are caught BEFORE they leave the warehouse.
Product reaches the customer- but they are not satisfied with the quality of the product.
This includes recalls.