Chapter 2 Formula Guide

FINANCIAL PERSPECTIVE

  1. Current Ratio - Current Asset

Current Liabilities

Relationship between______

What does it measure?

What do you compare to?

  1. Return on Sales - Net Income

Sales

Relationship between______

What does it measure?

What do you compare to?

  1. Debt to equity Ratio - Total Debt

Total Shareholder’s Equity

Relationship between______

What does it measure?

What do you compare to?

FINANCIAL PERSPECTIVE

  1. Quick Ratio - Cash + Short Term Investments + Receivables

Current Liabilities

Relationship between______

What does it measure?

What do you compare to?

  1. Return on Owner’s Equity Ratio - Net Income

Average Owners Equity

What does it measure?

What is it used for?

  1. Gross Margin Ratio - Gross Margin

Sales

Relationship between______

What does it measure?

What do you compare to?

FINANCIAL PERSPECTIVE

  1. Return on Investment Ratio (ROI) - Net Income

Average Total Assets

Relationship between______

What does it measure?

What do you compare to?

INTERNAL PERSPECTIVE – Time measurements

Value Added Activities – Those that add value to company’s products or services

Example:

Non-Value Added Activities – Time spent on activities that do not add value to company’s product or services.

Examples:

  1. Order response time –
  1. ______- Any time during the phase when the order is waiting
  1. Storing time –
  1. ______– Time it takes to deliver the order to customer

What are the three Activity Ratios?

  1. A/R turnover and days – Days in ______cycle.

Sales/ Average Accounts Receivable = turnover
365 / A/R turnover = days

What does it measure?

What do you compare to?

INTERNAL PERSPECTIVE – Time measurements

  1. Inventory turnover and days – Days in ______cycle.

Cost of Goods Sold/ Average Inventory = turnover
365 / Inventory turnover = days

What does it measure?

What do you consider?

  1. A/P turnover and days – Days in ______cycle.

Cost of Goods Sold/ Average Accounts Payable = turnover
365 / A/P turnover = days

What does it measure?

What do you compare to?

INTERNAL PERSPECTIVE - Quality Measurements

  1. Prevention cost –

Example:

  1. Appraisal cost -

Example:

  1. Internal failure cost -

Example:

  1. External failure cost –

Example:

CUSTOMER PERSPECTIVE -

Monitoring customer base focusing on customer growth and customer satisfaction

What measures are used for this perspective?

  1. Market share – Percentage of total sales in the market generated by a particular company

LEARNING AND GROWTH PERSPECTIVE -

Concerned with the company’s ability to take actions now to ensure its future.

What measures are used for this perspective?

  1. Technology – Company must monitor its information systems to ensure its compatibility with suppliers and customers. Must keep up with the latest changes in technology.