Corporate Performance Measurement (PowerPoint PPT Slide Deck)

This PPT slide presents a framework for corporate performance measurement, specifically focusing on the DuPont formula. This formula breaks down Return on Equity (ROE) into its fundamental components, allowing for a detailed assessment of business performance. The slide outlines the mathematical relationships that define ROE, emphasizing its calculation as net income divided by equity.

The slide further elaborates on the decomposition of ROE into 3 key metrics: Return on Sales (ROS), Asset Turnover, and Leverage. Each of these components plays a crucial role in understanding how effectively a company is utilizing its resources to generate profits. ROS measures profitability by comparing net income to sales, while Asset Turnover assesses how efficiently a company uses its assets to produce sales. Leverage indicates the extent to which a company is using debt to finance its assets.

By presenting ROE in this structured manner, the slide highlights the interconnectedness of these metrics. It suggests that improving any one of these components can lead to enhanced overall performance. This analytical approach provides executives with a clearer framework for evaluating financial health and operational efficiency. It also serves as a guide for identifying areas for improvement, whether through enhancing profitability, optimizing asset utilization, or adjusting leverage.

For decision-makers, understanding this framework is essential. It not only aids in performance assessment, but also supports strategic planning and resource allocation. This slide effectively encapsulates a critical financial analysis tool that can drive informed decision-making within an organization.

This PPT slide presents a financial analysis focused on break-even calculations for a factory purchase, specifically examining the implications of financing through a mix of debt and equity. The scenario outlined involves acquiring a factory for £100K, with a financing structure of 70% debt and 30% equity.

Key assumptions include a tax rate of 40% and a cost of equity set at 15%. The breakdown of financing shows £70K financed through debt at a 7% interest rate, resulting in annual interest payments of £4.9K. The equity portion, calculated as £30K, incurs a charge of £7.5K, which is not tax-deductible.

The total after-tax profit required to break even is calculated to be £12.4K. This figure is significant as it highlights the financial burden of using equity financing compared to an all-debt approach. The slide notes that if the factory were financed entirely through debt, the break-even point would only require £7K in after-tax profits.

The takeaway here is clear: the choice of financing structure has a direct impact on the required profitability to cover costs. Any profits exceeding £12.4K would be classified as economic profits, emphasizing the importance of understanding the cost implications of different financing strategies. This analysis provides valuable insights for decision-makers evaluating their financing options and the associated financial performance metrics.

This PPT slide presents a structured approach to calculating Cash Flow Return on Investment (CFROI), a critical metric for assessing corporate performance. It outlines a step-by-step framework that begins with determining the life of assets, which is foundational for understanding their value over time. This initial calculation sets the stage for subsequent evaluations.

Next, the slide emphasizes the importance of calculating gross cash flow. This figure represents the total cash generated by the business before any deductions, providing a clear picture of operational efficiency. Following this, the gross cash investment is calculated, which includes all capital expenditures necessary for maintaining and growing the asset base.

The framework further instructs on calculating the sum of non-depreciating assets. This step is crucial as it helps in distinguishing between assets that lose value over time and those that retain their worth, allowing for a more accurate financial analysis.

The calculation of CFROI itself is highlighted as a pivotal point in the framework. This metric serves as a comprehensive indicator of how effectively a company is utilizing its capital to generate cash flow. Finally, the slide concludes with the necessity of comparing the calculated CFROI to a benchmark. This comparison provides context, enabling executives to gauge performance relative to industry standards or historical data.

In essence, this slide encapsulates a systematic methodology for evaluating corporate performance through CFROI, offering a clear pathway to understanding asset efficiency and cash generation capabilities. The insights derived from this framework can inform strategic decision-making and resource allocation.

This PPT slide outlines the relationship between the Income Statement and Balance Sheet, specifically focusing on how net income influences retained earnings and dividends. At the core of this relationship is the concept of dividend policy, which is a critical management decision that impacts shareholder value.

Net income is presented as the starting point, defined as the income attributable to shareholders after accounting for EBIT, interest, and tax. This figure serves as the basis for management's decision-making process regarding the allocation of profits. The slide indicates 2 primary paths for this allocation: reinvesting in the company or distributing funds to shareholders.

If management opts to reinvest profits, the funds are categorized as retained earnings. This approach reflects a strategy where cash is retained within the company to support growth initiatives or operational improvements. From a shareholder perspective, this represents cash "out," as they do not receive immediate returns on their investment.

Conversely, if management decides to distribute profits, dividends are issued to shareholders. This action is characterized as cash "in" from the shareholders' viewpoint, providing them with tangible returns on their investment. The slide emphasizes that the choice between these 2 paths is a significant management decision, with implications for both the company’s financial health and shareholder satisfaction.

Understanding this linkage is essential for stakeholders, as it highlights how management's choices directly affect financial performance and shareholder returns. This framework serves as a foundational element for evaluating corporate performance and guiding strategic financial decisions.

This PPT slide presents a framework for corporate performance measurement, specifically focusing on accounting adjustments as outlined by Stern Stewart. It emphasizes the necessity of adjusting capital and earnings to align with industry-specific accounting practices, thereby enhancing the comparability of financial metrics across different sectors.

The left side of the slide lists key adjustments that are critical for accurate performance measurement. These include reserves, goodwill, capitalisation of outlays, full-cost accounting, unusual items, and capitalisation of leases. Each adjustment plays a vital role in refining financial data to reflect a more accurate economic profit.

On the right side, the slide categorizes industries that are most affected by these adjustments. For example, high inventory industries, such as consumer goods and services, are highlighted due to their susceptibility to issues like bad debt and inventory obsolescence. Acquisitive industries also require careful consideration of goodwill, while R&D intense industries must account for capitalisation of outlays.

The slide further identifies discovery industries, restructuring industries, and capital-intensive sectors as areas where full-cost accounting and unusual items are particularly relevant. This segmentation underscores the importance of tailored financial analysis based on industry characteristics.

Overall, the content suggests that understanding these adjustments is crucial for stakeholders aiming to make informed decisions based on financial performance. It positions the adjustments as essential tools for achieving a clearer picture of economic profit, which can significantly influence strategic planning and investment decisions.

This PPT slide presents a visual representation of stock performance measured through Total Shareholder Return (TSR). It highlights the performance of a specific client, denoted as "XXX," against the S&P 500 index over a period from 1980 to 1998. The graph illustrates a clear upward trend in TSR for the client, particularly notable in the late 1990s. This suggests a significant increase in shareholder value created during this timeframe.

The Y-axis indicates the point changes in indices, while the X-axis represents the years. The data points reveal that the client's performance consistently outpaced the S&P 500, especially in the latter years. This trend can be interpreted as a strong indication of effective corporate strategies and operational excellence leading to enhanced market performance.

The note at the bottom credits the methodology and data validation to Price Waterhouse LLP, adding credibility to the analysis. This transparency is crucial for stakeholders who may be evaluating the reliability of the performance metrics presented.

Overall, the slide serves as a powerful tool for stakeholders to assess the effectiveness of corporate strategies in generating shareholder value. It provides a clear visual narrative that can support discussions around investment decisions, performance benchmarking, and strategic planning. The emphasis on TSR as a key metric aligns with best practices in performance measurement, making this slide a valuable asset for any executive looking to understand the financial impact of strategic initiatives.

This PPT slide presents a comparative analysis of traditional and modern wine production processes, highlighting the shift in operational strategies among New World wine producers. It emphasizes that the traditional wine-making approach is capital intensive, which poses challenges for producers. The text indicates that through selective outsourcing, New World wine producers have managed to streamline their operations and significantly lower their asset requirements.

The slide is structured around 3 categories of wine producer activities: Traditional Old World, Vertically Integrated New World (exemplified by Robert Mondavi), and Non-Vertically Integrated (represented by Glen Ellen). Each category is mapped against key stages of the wine production process, including vineyard activities, vinification, and aging.

The checkmarks indicate which activities are performed in each category. Traditional producers engage in all stages from grape culture to distribution. In contrast, vertically integrated New World producers selectively handle certain processes while outsourcing others, particularly in the vinification and aging stages. Non-vertically integrated producers further emphasize outsourcing, performing only essential activities and relying on external partners for the rest.

This analysis reveals strategic choices that can lead to operational efficiency and reduced capital investment. For potential customers, understanding these distinctions can inform decisions about partnerships and investment in wine production, as well as highlight the evolving nature of the industry in response to economic pressures. The slide effectively illustrates how modern practices can reshape traditional industries, providing a framework for evaluating operational strategies.

This PPT slide presents a framework for corporate performance measurement, focusing on fundamental business drivers that influence shareholder value. At the core is Operating Profit, which is derived from the equation: Volume multiplied by Price, minus Costs. This highlights the importance of understanding the interplay between these components to assess profitability effectively.

Volume is defined as the number of units sold, while Price refers to the average selling price per unit. Costs are categorized into direct costs, such as materials and labor, and indirect costs, including selling, general, and administrative expenses, along with depreciation. This breakdown emphasizes the need for a detailed analysis of cost structures to identify potential areas for improvement.

The slide also introduces Fixed Assets and Working Capital as critical elements in the broader context of corporate performance. Fixed Assets encompass property, plant, equipment, and intangibles, which are essential for operational capacity. Working Capital, on the other hand, is calculated as current assets minus current liabilities, indicating the liquidity available for day-to-day operations.

Cost of Capital is another crucial factor, represented by WACC (Weighted Average Cost of Capital). It reflects the average cost of financing, taking into account the market values of debt and equity. The slide suggests using the after-tax cost of debt and the cost of equity for private firms, which is vital for accurate financial assessments.

Overall, this framework provides a structured approach for executives to evaluate the drivers of value creation or destruction, enabling informed decision-making to enhance corporate performance.

This PPT slide presents a critical analysis of corporate performance measurement, particularly focusing on the implications of Return on Equity (ROE) for project selection by managers. It highlights a common scenario where managers, driven by the objective of maximizing ROE, may overlook potentially profitable projects. The graph illustrates the relationship between Net Present Value (NPV) and ROE, indicating that projects with an ROE greater than a certain threshold (R0), but less than the manager's current ROE (R) are likely to be dismissed.

The text emphasizes that managers are evaluated primarily on their ability to maximize ROE, which can lead to a narrow focus that excludes viable projects. Specifically, a manager with an ROE of R will not consider any projects that yield an ROE below R1, even if those projects could generate positive NPV. This behavior results in missed opportunities for the organization, as it restricts the range of projects that are deemed acceptable.

The slide also notes that while projects with ROE above R0 may still provide positive NPV, they will not be pursued if they fall below the manager's personal ROE threshold. This creates a gap between potential economic profit and actual project selection, ultimately limiting overall corporate performance.

Understanding this dynamic is essential for organizations aiming to optimize their project portfolios. It suggests the need for a broader evaluation framework that encourages managers to consider a wider array of projects, even those that may not meet their immediate ROE expectations, but could still contribute positively to the company's financial health.

This PPT slide presents a detailed view of the consolidated balance sheet for Harnischfeger Industries Inc. as of October 31, 1996, focusing on liabilities and shareholders’ equity. It categorizes financial obligations into current liabilities, long-term obligations, other liabilities, minority interest, and shareholders' equity.

Current liabilities are broken down into several components, including short-term notes payable, trade accounts payable, and employee compensation. Notably, accrued warranties and other current liabilities are also listed, indicating the company's short-term financial commitments. The total for current liabilities amounts to $1,077,127, which reflects a significant portion of the company's obligations.

Long-term obligations are highlighted, with a total of $657,765. This section includes liabilities for post-retirement benefits and accrued pension costs, which are critical for understanding the company's long-term financial health. Other liabilities, including deferred income taxes, further contribute to the total obligations.

The slide also addresses minority interest and shareholders' equity, which are essential for assessing the company's capital structure. Shareholders' equity includes common stock, capital in excess of par value, and retained earnings. The cumulative translation adjustments and deductions for stock employee compensation provide insight into the company's financial management practices.

Overall, this balance sheet snapshot is crucial for potential investors or stakeholders looking to evaluate Harnischfeger Industries' financial position. It offers a clear breakdown of liabilities and equity, which can inform decisions regarding investment or partnership opportunities.

This PPT slide presents a comparative analysis of market value added by various sectors in the UK as of September 1998. The data is visually represented in a bar chart format, showcasing the top ten sectors based on their market value added. The leading sectors include Banks, Integrated Oil, and Drugs, which significantly outpace others, with Banks leading at £102.5 billion, followed closely by Integrated Oil at £94.3 billion and Drugs at £89.3 billion.

The remaining sectors show a notable drop in market value added, with Media at £42.9 billion, followed by Food Manufacturers, Telecoms, and Retailers, all of which are below £40 billion. The chart indicates that Grocers, Electricity, and Drinks have the lowest market value added, all hovering around £18 billion to £16.8 billion.

This data suggests a clear hierarchy in sector performance, where financial services and energy-related sectors dominate the market value landscape. The stark contrast between the top 3 sectors and the rest highlights potential areas for investment and strategic focus. For executives considering market entry or expansion, understanding these dynamics can inform resource allocation and strategic planning. The slide serves as a valuable tool for assessing sector viability and prioritizing initiatives based on market performance metrics. It emphasizes the importance of aligning business strategies with sectors that demonstrate robust market value contributions.

This PPT slide presents a framework for understanding the relationship between the complexity of information used in corporate performance measurement and the value it generates for an organization. It highlights the concept of an "optimum information level," which is crucial for maximizing economic value added.

On the vertical axis, we see "Value to the Organisation," which peaks at a certain point, indicating that there is a maximum value derived from the information complexity. The curve suggests that organizations that operate below this optimal point suffer from overly simplistic measurement and decision-making processes, leading to underperformance. Conversely, as organizations attempt to increase complexity beyond this optimal level, they encounter diminishing returns. The costs associated with excessive adjustments and analyses begin to outweigh the incremental benefits gained from more complex information.

The slide further outlines key factors that determine this optimum level of adjustment and analysis. These include the absolute sensitivity of value measures to adjustments, the organizational level utilizing the economic value-added information, the strategic use of that information, and the management's ability to make informed decisions based on the data.

This framework serves as a guide for executives to calibrate their approach to performance measurement. It emphasizes the need for a balanced strategy that avoids both oversimplification and unnecessary complexity, thereby ensuring that the organization can make informed decisions that enhance overall performance.

This PPT slide outlines key initiatives that have contributed to the success of New World wine producers, particularly in relation to capital intensity. It identifies 3 main drivers of value: the decreased importance of appellation, reduction in capital intensity, and premium positioning alongside varietal dominance.

The first section highlights how the decreased importance of appellation has led to lower grape costs. Producers are increasingly purchasing grapes on the spot market or through long-term contracts, which offers flexibility and cost savings. Additionally, blending techniques are emphasized to maintain consistent quality, suggesting that producers are adapting to market demands without being tied to traditional geographic indicators.

The second driver focuses on the reduction in capital intensity. It notes a wider range of outsourcing opportunities, particularly through third-party grape sourcing. This reduces the necessity for producers to own and operate vineyards and production facilities, allowing for a more asset-light model. The mention of new technology that reduces stock holding time indicates an operational efficiency that can enhance cash flow and responsiveness to market changes.

Lastly, the slide discusses premium positioning and varietal dominance. It asserts that higher quality wines command better returns, and achieving scale through varietal dominance can further amplify these returns. This suggests that strategic positioning in the market can lead to significant financial benefits.

Overall, the insights presented in this slide are crucial for understanding how New World wine producers have navigated challenges and leveraged opportunities to enhance their market position.

This PPT slide presents a detailed framework for understanding Economic Profit (EP) as a key metric in corporate performance measurement. It outlines how EP is derived from various financial components, emphasizing its role in assessing a company's value creation or destruction. The central focus is on the calculation of EP, which starts with Net Operating Profit After Tax (NOPAT). This figure is adjusted by subtracting a charge for capital employed, which is calculated using the Weighted Average Cost of Capital (WACC).

The slide also breaks down the components contributing to NOPAT, including Operating Profit, Effective Taxation, Gross Profit, Advertising & Promotion (A&P), and Overheads. Each of these elements plays a crucial role in determining the overall profitability of the company. The visual structure indicates that EP is not only straightforward, but also flexible, as it can be applied across different products, segments, and regions, making it a versatile tool for performance analysis.

The benefits of using Economic Profit are highlighted, such as its ease of use based on historical accounting records and its independence from Generally Accepted Accounting Principles (GAAP). This flexibility allows organizations to project future performance and assess value creation over time. The slide concludes with key insights on the implications of positive Economic Profits, indicating that sustained profitability leads to value creation, higher market prices per share, and growth potential. This information is vital for executives looking to enhance strategic decision-making and performance evaluation within their organizations.

This PPT slide presents a detailed analysis of Harnischfeger’s working capital requirements as of October 31, 1996, with a total amount of $374.46 million. It categorizes the company's financial components into 2 main sections: total investments in the operating cycle and liabilities implicit in the operating cycle.

On the left side, total investments in the operating cycle are broken down into several categories. Operating cash is listed at $28,640, while prepaid expenses and other current assets total $158,413. The largest components are inventories at $547,115 and receivables at $667,786, culminating in a total of $1,401,954 for this section.

The right side of the slide outlines the liabilities associated with the operating cycle. Accounts payable is noted at $346,056, while accrued expenses and other current liabilities amount to $526,239. The total liabilities in this section sum up to $874,295.

The net investments in the operating cycle are calculated by subtracting the total liabilities from the total investments, resulting in a working capital requirement of $374,460. This figure is critical as it reflects the capital needed to maintain operations and support growth.

Overall, the slide provides a clear financial snapshot, enabling stakeholders to understand the company's liquidity position and operational efficiency. The breakdown of assets and liabilities offers insights into cash flow management and working capital strategies, essential for informed decision-making.

This PPT slide presents a framework for understanding the Economic Profit (EP) balance sheet, emphasizing the adjustments necessary to derive a more accurate financial picture. It contrasts the traditional balance sheet with the EP balance sheet, highlighting key differences in asset and liability treatment.

On the left, the regular balance sheet categorizes assets and liabilities, including cash, receivables, inventories, fixed assets, and various forms of debt. The right side introduces the EP balance sheet, which modifies these categories to reflect a more nuanced view of financial health. Notably, short-term non-interest bearing liabilities (NIBL) are excluded from the EP balance sheet, as they do not generate capital returns. This exclusion is critical for stakeholders seeking a clearer understanding of net assets.

The slide also outlines the concept of net working capital and net fixed assets, indicating that the EP balance sheet does not differentiate between tangible and intangible assets. This approach may result in a significantly larger net assets figure compared to traditional accounting methods, especially after accounting for distortions such as the inclusion of internally-generated intangible assets.

The insights provided here are essential for executives looking to refine their financial analysis and reporting. By focusing on economic profit, organizations can better assess their true financial performance and make more informed strategic decisions. This slide serves as a foundational element for understanding how to measure corporate performance beyond conventional metrics, ultimately guiding executives in enhancing their financial strategies.

This PPT slide presents a structured framework for corporate performance measurement, focusing on the calculation of economic profit and discount rates. It outlines a systematic approach for both publicly traded and non-publicly traded firms, detailing the steps necessary to determine the appropriate risk-free rate, market risk premium, cost of debt, and equity.

For publicly traded firms, the process begins with using published estimates of beta (?) to assess risk. The slide suggests taking the average of the highest quality sources, including BARRA estimates for U.S. firms. In contrast, for non-publicly traded firms, it emphasizes calculating an industry average for unlevered beta, using a long-term average of the difference between expected market returns and risk-free rates. This involves finding comparable firms and applying a specific formula to derive the average.

The slide also addresses the determination of the cost of debt (K?), noting that it may not always equal the coupon rate of bonds. It advises calculating the yield on outstanding debt and provides guidance on obtaining ratings from agencies like Moody's or S&P if necessary. Furthermore, it discusses how to assess the market value of debt and equity, suggesting methods such as using the book value of debt as a proxy and calculating the market value of equity based on share price and outstanding shares.

Finally, the slide concludes with the calculation of the firm's tax rate and WACC, providing a formula that integrates these components. This structured approach is essential for executives aiming to enhance their understanding of corporate performance metrics and make informed financial decisions.

This PPT slide presents a framework for corporate performance measurement, emphasizing the role of modified accounting business metrics in enhancing decision-making accuracy across various organizational levels. The vertical axis represents "Accuracy as Measure of Corporate Performance," ranging from low to high, while the horizontal axis indicates the "Level of Decision Making," also spanning low to high.

At the high end of accuracy, metrics such as Total Shareholder Return (TSR) and Market Value Added (MVA) are positioned, suggesting they provide significant insights for strategic decision-making. These metrics are likely to be more relevant at higher organizational levels where strategic oversight is crucial.

In the middle section, Economic Profit (EP), Economic Value Added (EVA), and Cash Flow Return on Investment (CFROI) are highlighted. These metrics appear to serve as effective tools for measuring performance at various decision-making levels, indicating their versatility and importance in operational contexts.

The lower section features Return on Equity (ROE) and Return on Assets (ROA), which are fundamental business drivers. This positioning suggests that while these metrics are essential, they may not provide the same level of accuracy in performance measurement compared to those higher up on the chart.

Overall, the framework illustrates a clear relationship between the accuracy of performance metrics and the level of decision-making within an organization. It underscores the necessity for executives to select appropriate metrics that align with their decision-making context to drive effective performance management.

This PPT slide presents a visual representation of Economic Profit (EP) within the context of corporate performance measurement. It defines Economic Profit as a residual profit concept that accounts for the opportunity cost of holding capital. The graph illustrates various financial metrics, starting from Revenues and moving through Operating Costs & Overheads, Profit Before Tax, Tax, Profit After Tax, Equity Capital Charge, and finally arriving at Economic Profit.

The vertical axis quantifies amounts in dollars, while the horizontal axis lists the sequential financial elements. Each bar represents a different stage in the profit calculation process. The initial bar for Revenues shows the highest amount, indicating total income generated. As the graph progresses, each subsequent bar decreases, reflecting the deductions made for operating costs, taxes, and capital charges.

A notable feature is the comparison between traditional accounting profits and Economic Profit. The slide highlights that traditional accounting may not fully capture the cost of capital, leading to a potentially misleading view of profitability. Economic Profit provides a more nuanced understanding, emphasizing the importance of considering opportunity costs in assessing financial performance.

This slide serves as a foundational element for understanding how Economic Profit differs from traditional profit measures. It underscores the necessity for executives to look beyond surface-level profit figures and consider the broader implications of capital allocation. For decision-makers, grasping this concept can lead to more informed strategic choices that align with long-term value creation. Understanding Economic Profit is crucial for any organization aiming to optimize its financial performance and resource utilization.

This PPT slide presents a structured framework for corporate performance measurement, focusing on modified accounting measures like EVA, MVA, EP, and CFROI. It categorizes the performance metrics into 3 distinct sections: Fundamental Business Drivers, Business Metrics, and Output Measures.

In the first section, "Fundamental Business Drivers," the slide emphasizes the primary business-specific factors that influence shareholder value. Key inputs include operating profits, which are broken down into volume, price, and costs. Additionally, it highlights the financial cost of capital employed, detailing elements such as fixed assets, working capital, and WACC. This section lays the groundwork for understanding what drives value within the organization.

The second section, "Business Metrics," outlines the tools utilized to measure business performance. It lists traditional accounting metrics like Return on Equity (ROE) and Return on Assets (ROA), alongside modified accounting measures such as EVA, EP, CFROI, and CVA. This indicates a blend of conventional and innovative approaches to performance assessment, suggesting a comprehensive evaluation strategy.

Finally, the "Output Measures" section focuses on backward-looking indicators that reflect overall company performance as perceived by the market. It includes metrics like Total Shareholder Return (TSR) and Total Business Return (TBR). These measures are crucial for stakeholders to gauge the effectiveness of the business strategies implemented.

Overall, the slide provides a clear, organized view of how various metrics interconnect to assess corporate performance, offering valuable insights for executives looking to enhance shareholder value.