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Flashcards in Performance Measures Deck (28):
1

What 4 perspectives are included

in Balanced Scorecard?

  1. Financial
  2. Customer
  3. Internal Business Processes
  4. Learning and Growth

2

Why was Balanced Scorecard created?

To measure Performance.

3

What are Strategy Maps?

Diagrams of Strategic Cause and Effect Relationships.

4

What is a Strategic Initiative?

A plan to achieve goals.

5

What measures are used under

Value-Based Management?

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

6

How is Return on Investment (ROI) calculated?

    Return   

Investment

Ex: $100 machine generates $60 income

$60 / $100 = 60% ROI

7

How is Residual Income calculated?

Operating Income

- (Required Rate of Return x Invested Capital)

= Residual Income

8

What is another name for

Required Rate of Return (RROR)?

RROR is also called 'Cost of Capital'

9

What is Weighted Avg Cost of Capital (WACC)?

How is it calculated?

  • Cost of Capital = weighted avg of the interest rates you pay for your Capital
  • includes Debt & the Rate of Return 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%

10

How is Spread calculated?

Spread = ROI - Cost of Capital

11

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

12

How is Free Cash Flow calculated?

Operating Income After Tax

+ Depreciation & Amortization

- Capital Expenditures

- Change in Net Working Capital

= Free Cash Flow

13

What is measured by Six Sigma?

It measures a product

vs its quality goal

14

What is the Asset Turnover Ratio?

      Sales      

Avg Assets

15

What does the Current Ratio tell us?

How is it calculated?

Can the company pay their short-term liabilities?

CA

CL

16

What does the Debt to Equity Ratio tell us?

How is it calculated?

How is the company financing its capital?

Total Debt

Total Equity

17

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

18

What does Gross Margin % tell us?

How is it calculated?

How profitable is the product after COGS?

Gross Margin = Gross Profit

   Net Sales

19

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

20

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

21

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

22

How is Market/Book ratio calculated?

Market Value of Common Stock

Book Value of Common Stock

23

What is Inventory Turnover

and how is it calculated?

How quickly does inventory get sold?

Inventory Turnover =               COGS          

Avg Inventory

24

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

25

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

26

What is an Internal Failure?

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

27

What is an External Failure?

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

28

What is Appraisal Cost?

Quality control - testing & inspection costs.