Performance Measures Flashcards Preview

Agency Law > Performance Measures > Flashcards

Flashcards in Performance Measures Deck (28)
Loading flashcards...
1
Q
What four perspectives are included in Balanced Scorecard?
A
Financial / Customer / Internal Business Processes / Learning and Growth
2
Q
Why was Balanced Scorecard created?
A
To measure Performance.
3
Q
What are Strategy Maps?
A
Diagrams of Strategic Cause and Effect Relationships.
4
Q
What is a Strategic Initiative?
A
A plan to achieve goals.
5
Q
What measures are used under Value-Based Management?
A
Return on Investment
Residual Income
Spread
Economic Value Added
Free Cash Flow
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
7
Q
How is Residual Income calculated?
A
Operating Income - (Required Rate of Return x Invested Capital) : Residual Income
8
Q
What is another name for Required Rate of Return (RROR)?
A
RROR is also called 'Cost of Capital'

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%
10
Q
How is Spread calculated?
A
Spread : ROI - Cost of Capital
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)
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
13
Q
What is measured by Six Sigma?
A
It measures a product versus its quality goal.
14
Q
What is the Asset Turnover Ratio?
A
Sales / Average Assets
15
Q
What does the Current Ratio tell us? How is it calculated?
A
Can the company pay their short-term liabilities?

Current Ratio : Current Assets / Current Liabilities
16
Q
What does the Debt to Equity Ratio tell us? How is it calculated?
A
How is the company financing its capital?

Debt to Equity Ratio : Total Debt / Total Equity
17
Q
What does the Debt to Total Assets ratio tell us? How is it calculated?
A
What proportions of the company's assets are encumbered with debt?

Debt to Total Assets : Total Liabilities / Total Assets
18
Q
What does Gross Margin % tell us? How is it calculated?
A
How profitable is the product after COGS?

Gross Margin : Gross Profit / Net Sales
19
Q
What does Operating Profit Margin tell us? How is it calculated?
A
How profitable is the product after all expenses (except interest and taxes)?

Operating Profit Margin : Operating Profit / Net Sales
20
Q
How is Times Interest Earned calculated and what does it mean?
A
Can the company make their interest payments?

Times Interest Earned : Earnings Before Tax & Interest / Interest Expense
21
Q
What does Return on Assets tell us? How is it calculated?
A
What % return are the assets generating?

Return on Assets : Net Income (net of interest & taxes) / Average Total Assets
22
Q
How is Market/Book ratio calculated?
A
Market Value of Common Stock / Book Value of Common Stock
23
Q
What is Inventory Turnover and how is it calculated?
A
How quickly does inventory get sold?

Inventory Turnover : COGS / Average Inventory
24
Q
What is the Quick Ratio and how is it calculated?
A
It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)

Quick Ratio : (Current Assets - Inventory) / Current Liabilities
25
Q
What is Average Collection Period- and how is it calculated?
A
How many days does it take the company to collect payment on A/R?

Average Collection Period : Average AR / Average Sales Per Day
26
Q
What is an Internal Failure?
A
Products have quality defects- but are caught BEFORE they leave the warehouse.
27
Q
What is an External Failure?
A
Product reaches the customer- but they are not satisfied with the quality of the product.

This includes recalls.
28
Q
What is Appraisal Cost?
A
Quality control- testing & inspection costs.