A Guide to Business Performance Measurements PDF
Preview A Guide to Business Performance Measurements
A GUIDE TO BUSINESS PERFORMANCE MEASUREMENTS Also by Edwin Whiting HOW TO GET YOUR EMPLOYMENT COSTS RIGHT A GUIDE TO BUSINESS PERFORMANCE MEASUREMENTS Edwin Whiting BA (Eean), FeA M MACMILLAN © Edwin Whiting 1986 Softcover reprint of the hardcover 1st edition 1986 978-0-333-37416-0 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended). Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1986 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG212XS and London Companies and representatives throughout the world Filmsetting by Vantage Photosetting Co. Ltd Eastleigh and London British Library Cataloguing in Publication Data Whiting, Edwin A guide to business performance measurements. I. Organisational effectiveness I. Title 338.7'4 HD58.9 ISBN 978-1-349-07474-7 ISBN 978-1-349-07472-3 (eBook) DOl 10.1007/978-1-349-07472-3 To Patricia Contents Preface Xlll PARTI OBJECTIVES ANDSCOPE INTRODUCTION 3 Problemsofprofit. Profitability. Othermeasures. External andinternal. Short-termand long-term. Tailoring totheuser. 2 PURPOSESANDPROBLEMSOF MEASUREMENT 7 Externalusers. Internalusers. Managementcontrol. Incentiveschemes. Budgetarycontrol. Management decision. Thebusinessentity. Divisionalperformance. Divisionaland entityperformance. 3 PLANOF THEBOOK 13 Basicclassifications. Measuresindetail. Accounting conventions. Ratios. Conclusion. 4 INCOME, VALUE AND COST 18 A theory of performance measurement. Income. Value. Cost. Inflation. Replacement value (CCA). Realisable value (COCOA). Current purchasing power value(CPP). Capital maintenance. Asymmetryof accounting values. Performance. Valueindecision-making. Part I References 26 viii Contents PART II THEMEASURESINDETAIL 5 TURNOVER 29 Definition. Accountancy. Underlyingphilosophy. Businessesbest suited. Organisations best suited. Power to motivate. Problems and troubles. TroubleSpot5.1:Transfer pricing 34 TroubleSpot5.2:Foreigncurrencytranslation 40 6 GROSS MARGIN 43 Definition. Accountancy. Underlying philosophy. Businessesbest suited. Organisations best suited. Power to motivate. Problems and troubles. TroubleSpot6.1:Stocksandwork-in-progress 48 7 VALUEADDED 59 Definition. Accountancy. Underlyingphilosophy. Businessesbest suited. Organisations best suited. Power to motivate. Problems and troubles. TroubleSpot7.1:Depreciation 65 TroubleSpot7.2:Revenueinvestment 75 8 OPERATINGPROFIT 81 Definition. Accountancy. Underlying philosophy. Businessesbest suited. Organisations best suited. Power to motivate. Problems and troubles. Trouble Spot 8.1: Pensionscosts 87 Trouble Spot 8.2: Allocationof central costs 94 9 PROFITAFTERINTEREST 99 Definition. Accountancy. Underlyingphilosophy. Businessesbest suited. Organisations best suited. Power to motivate. Problems and troubles. TroubleSpot9.1:Interestandcostofcapital l04 TroubleSpot9.2:Capitalisationofinterest 108 Contents ix 10 PROFITAFTERTAXATION 111 Definition. Underlyingphilosophy. Businessesbest suited. Organisationsbestsuited. Powertomotivate. Problems and troubles. TroubleSpot10.1:Capitalallowancesanddeferredtaxation 117 TroubleSpot10.2:Dividends,surplusACTandlosses 128 TroubleSpot10.3:Grouprelief 135 II ALL-INCLUSIVEPROFIT 138 Definition. Underlyingphilosophy. Businessesbest suited. Organisationsbestsuited. Powertomotivate. Problems and troubles. TroubleSpot11.1:Extraordinaryitems 142 TroubleSpot11.2:Goodwill 147 Part II References 151 PARTIII BASESOFACCOUNTING 12 ACCOUNTINGMECHANICS 155 Introduction. Comparativebasesofcompanyaccounts. Divisionalaccounts. 13 HISTORICCOST 163 Originand definition. Accountingstatements. Featuresofpure historiccost. Valuation. Advantages ofhistoric cost. Disadvantagesofhistoric cost. Where historic cost is good. Conclusion. Statement13.1:Groupprofit andlossaccount 170 Statement13.2: Valueaddedstatement 171 14 CURRENTCOST 172 Originanddefinition. Accountingstatements. Featuresofcurrentcost. Valuation. Advantagesof currentcost. Disadvantagesofcurrentcost. Where currentcostisgood. Conclusion. Statement14.1:Adjustmentstogroupprofit andloss account 187 x Contents 15 CASH FLOW 188 Origin and definition. Accounting statements. Features ofcash flow. Valuation. Advantages ofcash flow. Disadvantagesofcashflow. Wherecashflowis good. Conclusion Statement 15.1: Cashflow statement 196 Statement15.2:Cashvalueaddedstatement 197 Statement15.3:Longtermtotalcashflowstatement 198 16 FUNDSFLOW 200 Originand definition. Accountingstatements. Featuresoffundsflow. Advantagesoffundsflow. Disadvantagesoffundsflow. Wherefunds flowis good. Conclusion. Statement 16.1:Fundsflowstatement 205 Part III References 206 PARTIV PERFORMANCERATIOS 17 RATIOSIN GENERAL 209 Needforcomparison. Absoluteversuscomparative. Formsofratio. Caveats onratios. Measurementby ratio. 18 RETURNON CAPITALEMPLOYED 214 Introduction. Typesand definitions. Net present valueand rate ofreturn. FormulaforROCE. Basisof accounting. Fixedassetsgrossor netofdepreciation. Inclusion ofcashintheassetbase. 'Intangibles'. Assetsatlowerthan cost. Leasedassets. Published and divisionafROCE. Alternativetodivisional ROCE. Labourand capital intensive. Newand oldbusinesses. Merits ofROCE. PitfallsinROCE. Conclusion. 19 OTHER OPERATING RATIOS 232 Introduction. Operating profit/operating capital. Gross margin/turnover. Operating profit/turnover. Value added/turnover. Value added/employment cost. Operating capital/turnover. Value added/operating capital. Fixed assets/turnover. Working capital/ turnover. Stocks/materials consumed (or turnover). Debtors/turnover.
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