It is critical that organisations can monitor their performance over a period of time.
This helps them: (6)
This helps them:
- Identify problems
- Control costs
- Measure how resources are being used
- Measure employee performance
- Plan for needed changes
- Plan for future (short term, medium term and long term)
- Financial measures of performance: Ratio analysis
There are four categories of ratios:
When analysing financial performance, it is important to recognise that performance measures and financial ratios in isolation have _______ ______________. In order to interpret the meaning of performance measures and ratios, they must be compared against appropriate _____________, of which the following are examples: (4)
Liquidity (covered in ACC1010):
- current ratio and quick ratio, etc.
Leverage:
- this is the gearing aspects and we covered some of this previously. For example: debt/equity ratio, interest cover, etc. these ratios are measures of financial risk.
Activity (covered both in ACC1010 and previously):
- inventory days, trade receivables and trade payables days, etc. These ratios are important in the management of working capital
Profitability (covered in ACC1010):
- gross profit margin, operating profit margin, return on capital employed, return on assets, return on equity, etc.
When analysing financial performance, it is important to recognise that performance measures and financial ratios in isolation have little significance. In order to interpret the meaning of performance measures and ratios, they must be compared against appropriate benchmarks, of which the following are examples:
- Financial targets set by a company’s strategic plan. E.g., a target return on capital employed or economic profit - Performance measures and ratios of companies engaged in similar business activities - Average performance measures and ratios for the company’s operations, i.e., sector averages. - Performance measures and ratios for the company from previous years, adjusted for inflation if necessary.
- Non-Financial measures of performance:
What are they and what examples of them (6/4)
1 fact
Non-financial indicators
This is data which is expressed in numbers, but is not financially orientated.
Examples:
- Hours worked
- Number of employees
- Number of customers
- Units produced
- Units sold
- Level of wastage
Qualitative measures
This is data which is not numerically based.
Examples:
- Opinions
- Judgements
- Appraisals
- Attitudes
These can be more important measure of performance in a service industry than in a manufacturing one.
- Balanced Scorecard (BSC)
This is a way of viewing performance from four perspectives:
- Financial perspective (How do we look to shareholders?).
- Customer perspective (How do customers see us?).
- Internal business perspective (What must we excel at to satisfy our shareholders and customers?)
- Learning and growth perspective (How can we continue to improve and create value?)
- Financial perspective (How do we look to shareholders?).
There are three core financial themes that drive the business strategy:
What does it specify?
Therefore?
There are three core financial themes that drive the business strategy:
- revenue growth and mix,
- cost reduction and
- asset utilization.
specifies the financial performance objectives anticipated from pursuing the organisation’s strategy and also the economic consequences of the outcomes from achieving the objectives speciexpectedfied from the other three perspectives.
Therefore, the objectives and measures from the other perspectives should be selected to ensure that the financial outcomes will be achieved.
- Customer perspective (How do see us?). customers
What does the figure list?
What should it identify?
The customer perspective?
The figure lists five typical core or generic objectives, and some additional measures (customer value propositions).
should identify the customer and market segments in which the business will compete.
The customer perspective underpins the revenue element for the financial perspective objectives. Therefore, the achievement of customer objectives should ensure that target revenues will be generated.
- Internal business perspective (What must we excel at to satisfy our shareholders and customers?).
The process value chain consists of three processes:
What does it require?
What should be identified?
The process value chain consists of three processes:
- the innovation process,
- the operations process and
- the post-sales process.
requires that managers identify the critical internal processes for which the organization must excel in implementing its strategy.
Critical processes should be identified that are required to achieve the organization’s customer and financial objectives.
- Learning and growth perspective (How can we continue to improve and create value?).
There are three major enabling factors for this perspective:
What does it state?
What does this perspective stress?
There are three major enabling factors for this perspective:
- employee capabilities,
- information system capabilities and
- the organisational climate for motivation, empowerment and alignment.
The organisation and its employees must keep learning and developing to ensure that an organisation will continue to have loyal and satisfied customers in the future and continue to make excellent use of its resources. Therefore, there is a need for a perspective that focuses on the capabilities that an organisation needs to create long-term growth and improvement.
This perspective stresses the importance of organisations investing in their infrastructure (people, systems, and organisational procedures) to provide the capabilities that enable the accomplishment of the other three perspectives’ objectives.
This helps them:
- Identify problems
- Control costs
- Measure how resources are being used
- Measure employee performance
- Plan for needed changes
- Plan for future (short term, medium term and long term)
It is critical that organisations can monitor their performance over a period of time.
This helps them: (6)
Liquidity (covered in ACC1010):
- current ratio and quick ratio, etc.
Leverage:
- this is the gearing aspects and we covered some of this previously. For example: debt/equity ratio, interest cover, etc. these ratios are measures of financial risk.
Activity (covered both in ACC1010 and previously):
- inventory days, trade receivables and trade payables days, etc. These ratios are important in the management of working capital
Profitability (covered in ACC1010):
- gross profit margin, operating profit margin, return on capital employed, return on assets, return on equity, etc.
When analysing financial performance, it is important to recognise that performance measures and financial ratios in isolation have little significance. In order to interpret the meaning of performance measures and ratios, they must be compared against appropriate benchmarks, of which the following are examples:
- Financial targets set by a company’s strategic plan. E.g., a target return on capital employed or economic profit - Performance measures and ratios of companies engaged in similar business activities - Average performance measures and ratios for the company’s operations, i.e., sector averages. - Performance measures and ratios for the company from previous years, adjusted for inflation if necessary.
- Financial measures of performance: Ratio analysis
There are four categories of ratios:
When analysing financial performance, it is important to recognise that performance measures and financial ratios in isolation have _______ ______________. In order to interpret the meaning of performance measures and ratios, they must be compared against appropriate _____________, of which the following are examples: (4)
Non-financial indicators
This is data which is expressed in numbers, but is not financially orientated.
Examples:
- Hours worked
- Number of employees
- Number of customers
- Units produced
- Units sold
- Level of wastage
Qualitative measures
This is data which is not numerically based.
Examples:
- Opinions
- Judgements
- Appraisals
- Attitudes
These can be more important measure of performance in a service industry than in a manufacturing one.
- Non-Financial measures of performance:
What are they and what examples of them (6/4)
1 fact
This is a way of viewing performance from four perspectives:
- Financial perspective (How do we look to shareholders?).
- Customer perspective (How do customers see us?).
- Internal business perspective (What must we excel at to satisfy our shareholders and customers?)
- Learning and growth perspective (How can we continue to improve and create value?)
- Balanced Scorecard (BSC)
There are three core financial themes that drive the business strategy:
- revenue growth and mix,
- cost reduction and
- asset utilization.
specifies the financial performance objectives anticipated from pursuing the organisation’s strategy and also the economic consequences of the outcomes from achieving the objectives speciexpectedfied from the other three perspectives.
Therefore, the objectives and measures from the other perspectives should be selected to ensure that the financial outcomes will be achieved.
- Financial perspective (How do we look to shareholders?).
There are three core financial themes that drive the business strategy:
What does it specify?
Therefore?
The figure lists five typical core or generic objectives, and some additional measures (customer value propositions).
should identify the customer and market segments in which the business will compete.
The customer perspective underpins the revenue element for the financial perspective objectives. Therefore, the achievement of customer objectives should ensure that target revenues will be generated.
- Customer perspective (How do see us?). customers
What does the figure list?
What should it identify?
The customer perspective?
The process value chain consists of three processes:
- the innovation process,
- the operations process and
- the post-sales process.
requires that managers identify the critical internal processes for which the organization must excel in implementing its strategy.
Critical processes should be identified that are required to achieve the organization’s customer and financial objectives.
- Internal business perspective (What must we excel at to satisfy our shareholders and customers?).
The process value chain consists of three processes:
What does it require?
What should be identified?
There are three major enabling factors for this perspective:
- employee capabilities,
- information system capabilities and
- the organisational climate for motivation, empowerment and alignment.
The organisation and its employees must keep learning and developing to ensure that an organisation will continue to have loyal and satisfied customers in the future and continue to make excellent use of its resources. Therefore, there is a need for a perspective that focuses on the capabilities that an organisation needs to create long-term growth and improvement.
This perspective stresses the importance of organisations investing in their infrastructure (people, systems, and organisational procedures) to provide the capabilities that enable the accomplishment of the other three perspectives’ objectives.
- Learning and growth perspective (How can we continue to improve and create value?).
There are three major enabling factors for this perspective:
What does it state?
What does this perspective stress?
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Introduction to Corporate Finance4
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Corporation and Governance8
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Capital Investment Decisions: Appraisal Methods11
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Long-term and Short-term Financing Sources21
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Short-term finance: Working capital management9
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Cost of Capital & Dividend Policy22
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Performance Measurement16
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Semester 1 Exam95
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Introduction to Management Accounting9
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Cost Terms and concepts29
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Types of expenses11
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Costing including marginal and absorption costing17
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Budgets and flexed budgets16
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CVP Analysis, Limiting Factors and Budgeting8
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Standard costing and variance analysis6
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Key Terms and concepts1
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Understanding Management Accounting7
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Quiz 26
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Differences between Managerial and Financial Accounting6
