acca P5

Topics: Management accounting, Cost, Costs Pages: 56 (3209 words) Published: June 19, 2014
PAPER P5 

DECEMBER 2011 REVISION

PERFORMANCE MEASUREMENT (1)
FINANCIAL PERFORMANCE:

GROWTH:

Revenue / Profits / EBITDA / Market Share

PROFITABILITY:

Absolute profit / ROCE / Profit margin

GEARING:Gearing ratio
LIQUIDITY:

Current ratio / Net cash flow

SHAREHOLDERS:

EPS / Share price / PE ratio

Always comment on any significant changes (e.g. new issue of shares) and likely reasons/effects (e.g. new investment - therefore possibly more profit in the future)

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PAPER P5 

DECEMBER 2011 REVISION

PERFORMANCE MEASUREMENT (2)
FITZGERALD AND MOON’S BUILDING BLOCKS

Look at performance under six headings:
*

FINANCIAL

*

QUALITY

*

FLEXIBILITY

*

EFFICIENCY (resource utilisation)

*

INNOVATION

*

COMPETITIVENESS

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PAPER P5 

DECEMBER 2011 REVISION

PERFORMANCE MEASUREMENT (3)
KAPLAN & NORTON’S BALANCED SCORECARD
The Four Perspectives
The Balanced Scorecard groups performance measures into four general perspectives:

Financial perspective;
Customer perspective;
Internal process perspective;
Innovation and Learning perspective.

According to each perspective of the Balanced Scorecard, a number of key performance indicators can be used such as:
Financial
Cash flow
Return on Investment
Return on capital employed
Return on equity
Customer
Delivery Performance to Customer - by Date
Delivery Performance to Customer - by Quality
Customer satisfaction rate
Customer retention rate
Internal Business Processes
Number of Activities
Accident Ratios
Equipment Effectiveness
Innovation and Learning
New innovations
Training per employee
Internal Promotions %
Employee Turnover

Under each perspective we should have a Goal; a Measure; and a Statistic E.g. under the Financial Perspective, a Goal may be ‘survival’; a relevant Measure for this Goal may be ‘net cash flow’; and the Statistic would be an actual figure for the net cash flow.

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PAPER P5 

DECEMBER 2011 REVISION

PERFORMANCE MEASUREMENT (4)
NOT-FOR-PROFIT ORGANISATIONS
Overall objective is value-for-money

ECONOMY
Are we paying a fair price for resources?
Tenders / benchmarking

EFFICIENCY
Resource utilisation rates

EFFECTIVENESS

‘success’ rates

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PAPER P5 

DECEMBER 2011 REVISION

PERFORMANCE MEASUREMENT (5)
DIVISIONAL PERFORMANCE MEASUREMENT
Type of responsibility centre:
Cost centre:
Manager has authority for decisions over costs (but not revenue) Revenue centre:
Manager has authority for decisions over revenue (but not costs) Profit centre:
Manager has authority for decisions over costs and revenues (but not capital investment decisions) Investment centre:
Manager has authority for decisions over costs, revenues, and new capital investment.

Controllable factors:
The manager should only be assessed over those items over which he has control. For example, if a manager is given authority to make decisions over everything except salary increases which are dictated by central management, then it would be unfair to include salaries in his performance measurement. If (for example) it is a profit centre, then for the purposes of measuring his performance the profit of the division should be calculated ignoring salaries.

For latest course notes, free audio & video lectures, support and forums please visit

PAPER P5 

DECEMBER 2011 REVISION

PERFORMANCE MEASUREMENT (6)
RETURN ON INVESTMENT V RESIDUAL INCOME
Division X of Y plc is currently reporting profits of $125,000 p.a. on capital employed of $800,000 A new project is being considered which will cost...
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