CH1 Accounting performance measurement: a review of its purposes and practices
Purpose chapter
review roles and functions financial measures of organizational performance and to outline
their development.
3 functions of financial performance measures:
1. Financial management (planning, budgets)
2. Overall business objective (shareholder value)
3. Motivation and control (control activities)
Three main functions for the use of financial performance measure:
1. As a tool of financial management, concerned with: (pre-define performance)
a. Efficient provision and use of financial resources to support the organisation.
(plan)
b. Managing the effective and efficient operation of the finance function. (control)
2. Objective of a business organisation, performance measures to signify the achievement
of organisational objectives: (measure performance)
a. ROI
b. EVA
c. Profit
3. Mechanism of motivation and control within the organisation. (reward on performance)
___________________________________________________________________________
Financial performance measure: as a tool of financial management
= Financial planning and control is an essential part of the management process:
o Financial plans: outline financial outcomes that are necessary for the organisations
to meet its commitments.
o Financial control: plans are monitored and necessary corrective action proposed
when deviations are detected.
Three areas to focus on for financial plans:
1. Cash flow planning: ensure that cash is available to do necessary payments.
2. Profitability: revenues higher than costs.
3. Focus on positive balance sheet rather than P&L account and cash flow statement
Financial management, 5 key ratios:
1. Current ratio = assets / liabilities
2. Quick ratio = (assets -/- inventory) / liabilities
3. Inventory turnover period = inventories / cost of sales
4. Debtors to sales ratio
5. Creditors to purchases ratio
Purpose chapter
review roles and functions financial measures of organizational performance and to outline
their development.
3 functions of financial performance measures:
1. Financial management (planning, budgets)
2. Overall business objective (shareholder value)
3. Motivation and control (control activities)
Three main functions for the use of financial performance measure:
1. As a tool of financial management, concerned with: (pre-define performance)
a. Efficient provision and use of financial resources to support the organisation.
(plan)
b. Managing the effective and efficient operation of the finance function. (control)
2. Objective of a business organisation, performance measures to signify the achievement
of organisational objectives: (measure performance)
a. ROI
b. EVA
c. Profit
3. Mechanism of motivation and control within the organisation. (reward on performance)
___________________________________________________________________________
Financial performance measure: as a tool of financial management
= Financial planning and control is an essential part of the management process:
o Financial plans: outline financial outcomes that are necessary for the organisations
to meet its commitments.
o Financial control: plans are monitored and necessary corrective action proposed
when deviations are detected.
Three areas to focus on for financial plans:
1. Cash flow planning: ensure that cash is available to do necessary payments.
2. Profitability: revenues higher than costs.
3. Focus on positive balance sheet rather than P&L account and cash flow statement
Financial management, 5 key ratios:
1. Current ratio = assets / liabilities
2. Quick ratio = (assets -/- inventory) / liabilities
3. Inventory turnover period = inventories / cost of sales
4. Debtors to sales ratio
5. Creditors to purchases ratio
