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Transcript
Performance measures Fred Wenstøp The four dimensions of the Balanced Scorecard Maximize Long term value of the firm Customer objectives Financial objectives Internal business process objectives Fred Wenstøp Learning and growth objectives 2 Financial objectives as a function of life cycle Life cycle Stage Growth Revenue growth rate Sales growth rate Sustain ROE ROTA ROCE Fred Wenstøp Harvest Operating Cash flow Reduction in working capital (liquidity) requirements 3 Core Customer objectives Market share % of volume, customers, revenue; share of wallet, stomach Customer acquisition ratio of new customer revenue per sales call or solicitation expence Customer retention rate at which ongoing relationship is maintained Customer profitability Can be based on activity based costing Fred Wenstøp 4 The internal business process value chain Innovation process Identify market and create product Operations process Build and deliver product Fred Wenstøp Postsale service process Service the customer 5 Innovation process objectives Basic and applied research • • • • % sales from new products new product introduction versus competitors manufacturing process capabilities time to develop next generation of products Product development (and same for postsale service) • Yields (fraction of compounds that pass to next stage) • Processing time • Manufacturing cycle effectiveness: – MCE =Processing time/Throughput time Throughput = Processing+Inspection+Movement+Storage • Quality (waste, scrap, rework) Fred Wenstøp 6 Learning and Growth Perspective Employee satisfaction Employee retention Index based on survey – Involvement with decisions – – – – – Recognition for good work Access to necessary information Active encouragment to be creative and use initiative Support level from staff functions Overall satisfaction with company (to protect investment and prevent loss of knowledge) Key staff turnover (%) Employee productivity Fred Wenstøp value added per employee or value added / employee compensation 7 Two perspectives on the balance sheet Traditional perspective Assets Sources and uses of funds Liabilities Things Amounts owned by the owed by the business business 100 100 Fred Wenstøp Assets Liabilities Where money is spent Where money is obtained 100 100 8 Structure of the balance sheet Assets Fixed assets Liabilities Owners’ funds (FA) (OF) Long-term loans Current assets (LTL) (CA) Current liabilities (CL) 100 Fred Wenstøp 100 9 Current assets Short term assets that can be converted to cash quickly inventories accounts receivable (trade debtors) cash and cash equivalents miscellaneous Assets Fixed assets (FA) Current assets • pre-payments to suppliers (CA) 100 Fred Wenstøp Liabilities Owners’ funds (OF) Long-term loans (LTL) Current liabilities (CL) 100 10 Fixed assets Assets All long term assets Fixed assets Intangibles • Goodwill, patents, licences (FA) Liabilities Owners’ funds (OF) Net fixed assets • • • • • Land and buildings plant and equipment transport computers office equipment Current assets (CA) Long term investments • Shares in associated companies 100 Fred Wenstøp Long-term loans (LTL) Current liabilities (CL) 100 11 Current liabilities Short term liabilities to be paid within one year Fixed assets (FA) Account payable (creditors) Short term loans • Bank overdrafts • Interst bearing short term debts Miscellaneous • • • • Assets Current assets (CA) Accrued payments interests current tax dividends due 100 Fred Wenstøp Liabilities Owners’ funds (OF) Long-term loans (LTL) Current liabilities (CL) 100 12 Long-term loans Assets All long-term loans Fixed assets more than one year (FA) Current assets (CA) 100 Fred Wenstøp Liabilities Owners’ funds (OF) Long-term loans (LTL) Current liabilities (CL) 100 13 Owners’ funds All claims by the owners on the business Assets Fixed assets (FA) Issued common stock Capital reserves • Surplus from sources other than normal trading that cannot be distributed Revenue reserves • Surplus from trading. Can be distributed as dividends, but not often used for that Fred Wenstøp Current assets (CA) 100 Liabilities Owners’ funds (OF) Long-term loans (LTL) Current liabilities (CL) 100 14 Common terms Assets Total assets Fixed assets TA = FA + CA Capital employed (FA) CE = FA + CA -CL CE = OF + LTL Current assets Net Worth NW = FA + CA - CL - LTL NW = OF (CA) Working capital (liquidity) 100 WC = CA - CL Fred Wenstøp Liabilities Owners’ funds (OF) Long-term loans (LTL) Current liabilities (CL) 100 15 Profit and loss account Sales Operating costs 112 100 PBIT Profit before interest and tax 12 less interest 2 PBT Profit before tax 10 less tax 3 PAT Profit after tax 7 less dividends 2 RE Retained earnings 5 Fred Wenstøp 16 Return on investment ROTA = PBIT/TA Return on total assets • Shows how well management uses all the assets in the business to generate an operating surplus ROE = PAT/OF Return on equity • Absolute return delivered to shareholders • High ROE leads to a high share price ROCE = PBIT/(OF + LTL) Return on capital employed Fred Wenstøp 17