Performance management

Question 1

What are the financial ratios and why are they used

Answer 1

Ratios assess profitability, liquidity, efficiency, and gearing.
Profitability ratios (e.g., ROCE, margin) assess profit generation.
Liquidity ratios (e.g., current ratio) measure ability to pay short-term debts.
Efficiency ratios show asset utilisation.
They help compare performance over time or against competitors.

Question 2

what is the ROI ratio

Answer 2

ROI meausres the rturn generated from capital invested by a division or company

ROI = profit/capital employeed

Question 3

what is RI

Answer 3

Residual income measures profit after deducting a chjarge for the capital used.

RI = profit - (capital X cost of capital)

Unlike ROI, it encourages managers to accept any project that increases total profit, even if ROI falls.

Question 4

what is the EVA - Economic Value added

Answer 4

EVA measures value creation after considering the cost of capital; it adjusts profit for accounting distortions to give an economic measure.
If EVA is positive, value has been created; negative value has been destroyed

Question 5

what are the element of a balanced scorecard

Answer 5

Financial - ROI/profit
customer - satisfaction/retention
internal processes - efficiency/quality
Learning & growth - training/innovation

Question 6

what is benchmarking

Answer 6

compares perfomacne against best practice - interanally and externally
it helps ot identify performance gaps and areas for improvment

Question 7

what are the types of benchmarking

Answer 7

Internal
Competitive
Functional
Process benchmarking