What 4 perspectives are included

in Balanced Scorecard?

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- Financial
- Customer
- Internal Business Processes
- Learning and Growth

Why was Balanced Scorecard created?

To measure Performance.

What are Strategy Maps?

Diagrams of Strategic Cause and Effect Relationships.

What is a Strategic Initiative?

A plan to achieve goals.

What measures are used under

Value-Based Management?

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- Return on Investment
- Residual Income
- Spread
- Economic Value Added Free Cash Flow

How is Return on Investment (ROI) calculated?

__ Return __

Investment

Ex: $100 machine generates $60 income

$60 / $100 = 60% ROI

How is Residual Income calculated?

Operating Income

__- (Required Rate of Return x Invested Capital)__

= Residual Income

What is another name for

Required Rate of Return (RROR)?

RROR is also called 'Cost of Capital'

What is Weighted Avg Cost of Capital (WACC)?

How is it calculated?

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- Cost of Capital = weighted avg of the interest rates you pay for your Capital
- includes Debt & the Rate of Return
_{Shareholders expect }

_{Shareholders expect }Ex: 45% of Capital _{is from debt and has an interest rate of 9%. }

55% of Capital _{is equity and shareholders expect a ROR of 12% }

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

How is Spread calculated?

Spread = ROI - Cost of Capital

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

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

Operating Income After Tax

__- (Net Assets x WACC) __

= Economic Value Added

How is Free Cash Flow calculated?

Operating Income After Tax

+ Depreciation & Amortization

- Capital Expenditures

__- Change in Net Working Capital __

= Free Cash Flow

What is measured by Six Sigma?

It measures a **product **

vs its **quality goal**

What is the Asset Turnover Ratio?

__ Sales __

Avg Assets

What does the Current Ratio tell us?

How is it calculated?

Can the company pay their short-term liabilities?

__CA__

CL

What does the Debt to Equity Ratio tell us?

How is it calculated?

How is the company financing its capital?

__Total Debt__

Total Equity

What does the Debt to Total Assets ratio tell us?

How is it calculated?

What proportions of the company's assets are encumbered with debt?

__Total Liabilities__

Total Assets

What does Gross Margin % tell us?

How is it calculated?

How profitable is the product after COGS?

Gross Margin = __Gross Profit__

Net Sales

What does Operating Profit Margin tell us?

How is it calculated?

How profitable is the product after all expenses (except interest and taxes)?

Operating Profit Margin = __Operating Profit__

Net Sales

How is Times Interest Earned calculated

and what does it mean?

Can the company make their interest payments?

Times Interest Earned= __Earnings Before Tax & Interest__

Interest Expense

What does Return on Assets tell us?

How is it calculated?

What % return are the assets generating?

Return on Assets= __Net Income (net of interest & taxes)__

Avg Total Assets

How is Market/Book ratio calculated?

__Market Value of Common Stock__

Book Value of Common Stock

What is Inventory Turnover

and how is it calculated?

How quickly does inventory get sold?

Inventory Turnover = __ COGS __

Avg Inventory

What is the Quick Ratio

and how is it calculated?

It measures short-term liquidity- and only includes assets that are quickly available (i.e. not inventory)

Quick Ratio = __ (Current Assets - Inventory)__

Current Liabilities

What is Avg Collection Period

and how is it calculated?

How many days does it take the company to collect payment on A/R?

Avg Collection Period= __ Avg AR __

Avg Sales Per Day

What is an Internal Failure?

Products have quality defects, but are caught **BEFORE** they leave the warehouse.

What is an External Failure?

Product reaches the customer, but they are not satisfied with the quality of the product. This includes **recalls**.

What is Appraisal Cost?

Quality control - testing & inspection costs.