Chapter 5 - Performance Indicators Flashcards Preview

AAT Decision & Control L4 AQ2016 > Chapter 5 - Performance Indicators > Flashcards

Flashcards in Chapter 5 - Performance Indicators Deck (30)
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1
Q

What is benchmarks?

A

Standards or targets set for one or more areas of activity and should be related to what is important to the organisation.

2
Q

What does quantitative data mean?

A

Data which can be stated in numbers which can be split into financial or monetary data.

3
Q

Examples of financial quantitative data

A

1) turnover
2) selling prices
3) variances
4) costs
5) costs per unit/hour

4
Q

Examples of non financial quantitative data?

A

1) production units
2) number of rejects
3) number of complaints
4) number of orders placed

5
Q

What does qualitative data mean?

A

Data which cannot be put in numerical terms. It consists of peoples judgement and opinions which is used for performance measuring.

8
Q

What is the gross profit margin (%) formula?

A

Gross profit / sales X 100%

9
Q

What is the net profit margin formula?

A

Net profit / sales X 100%

10
Q

What is the operating profit margin formula?

A

Operating profit / Sales X 100%

11
Q

Examples of performance measures?

A

1) sales
2) profit
3) costs
4) cost per employee
5) cost per hour
6) cost per unit of output

12
Q

Why are performance indicators used?

A

1) to identify a problem
2) to control expenses
3) measuring the performance of an individual
4) to create plans within an organisation

13
Q

What is ‘return on capital employed’?

A

Money being used to finance the running costs of the business which is represented by the owners capital and long term liabilities.

14
Q

What is the ‘return on capital employed’ formula?

A

Operating profit / (non current assets + net current assets) X 100%

Or

Operating profit / (capital + long term liabilities) X 100%

15
Q

What is the ‘return on net assets’ formula?

A

Operating profit / net assets X 100%

16
Q

What is value added?

A

The difference between value of output (sales) and value of inputs (materials/bought in services).

Value added = sales - (cost of materials used and bought in services)

17
Q

What is asset turnover and the formula?

A

The number of times the value of the assets has been obtained in turnover.

Asset turnover = turnover(sales) / (non current assets + net current assets)

18
Q

What is working capital?

A

The part of a business which circulates between inventory, receivables, cash and trade payables.

19
Q

Current ratio meaning and formula

A

This shows the number of times the current liabilities are covered by the current assets.

Current assets / current liabilities

20
Q

Quick ratio (acid test) meaning and formula

A

This ratio is used to compare the current assets other than inventory with the current liabilities.

(Current assets - inventory) / current liabilities

21
Q

Inventory holding meaning and formula

A

This shows how well the stock is being managed or the length of time taken to sell the inventory

Inventory / cost of goods sold X 365

22
Q

Inventory turnover meaning and formula?

A

This shows the number of times the inventory is sold in the year.

Cost of sales / inventory

23
Q

What is gearing and the formula?

A

What proportion of total funding comes from sources that demand regular payments of interest or dividends.

Debt / (debt + equity) X 100

24
Q

What is gearing (debt to equity) and the formula?

A

Compares the loans or debts directly to he equity instead of capital employed.

Debt / (Share capital + reserves) X 100

25
Q

What is the main and individual formulas for control ratios?
(ECA)

A

Activity ratio = capacity X Efficiency

Efficiency = standard hrs for actual production / Actual hours

Capacity = Actual hours / budgeted hours

Activity(Volume) = standard hours for actual production / budgeted hours

26
Q

Is it better to have low or high working capital cycle and why??

A

High - this indicates greater investment in working capital.

27
Q

What causes the gross profit margin to change??

A
  • sales price
  • sales volume (depending on whether you’re comparing flexed budgets)
  • material prices
  • labour costs
28
Q

Control ratio formulas ..
Efficiency
Activity
Capacity

A

Eff - S / A = standard hrs/actual hrs

Act - S / B = standard hues/actual hours

Cap - A / B = actual hrs / budget hrs

29
Q

What is a balanced scoreboard?

A

A way of viewing the performance of a profit making organisation from 4 perspectives.

30
Q

What 4 perspectives are included in the balanced scoreboard?

A

1) financial - satisfying shareholders
2) customers - satisfaction and loyalty
3) internal - technical excellence and needs
4) innovation and learning - continual improvement

31
Q

Examples of qualitative measures in service organisations

A
  • Average waiting time for customers

* customer complains/satisfaction

32
Q

Advantages of using variances?

A
  • to help monitor the use of resources
  • to help with control of the business
  • to help with planning for the future