relevant metrics

relevant metrics - RelevantMetrics Dr.JamesGong

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Click to edit Master subtitle style Relevant Metrics Dr. James Gong
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Today’s Agenda n What information to report? n Survey of investor needs n Strategy and accounting n Strategy-based business reporting model n Balanced scorecard n PwC value-reporting n UIUC strategy-based auditing n Financial accounting elements n SFAC 5 and SFAC6 n When and how much to recognize in reports?
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What Do Investors Want? q Information that is useful for stock valuation,  investment decisions, and performance  evaluation (of top management and board of  directors)
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0.0 0 1.0 0 2 . 0 0 3.0 0 4 . 0 0 5.0 0 6 . 0 0 7.0 0 8 . 0 0 Dec- 95 Mar- 96 Jun- Se p- 97 Sep- 98 Ju n- 99 Ma r- 00 01 02 M on th Market-To- Book S&P 500 Average Market-To-Book Ratio: 1995- 2002
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Strategy Determines Values  (Numbers) to Report in Accounting n 500 is greater than four.   n This means that historical accounting  performance represent about 25% of the  value of these companies. n 75% of value is related to future 
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Strategy Itself is Relevant  Information PwC 2007 Survey §   Investors can build a cohesive big picture of a  company when  §  an overview of its markets and an outline of  its strategy are coupled with  §  (1) discussion of the risks, resources  and relationships needed to implement  strategy  §  (2) key performance indicators. Inventors are keen to understand a company’s 
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What is Strategy? n The firm’s primary goals n The firm’s sources of comparative advantage in  achieving the goals n The firm’s choice of industry, products and services, its  target customers, and cost (investment) management  and pricing polices n Strategy is influenced by the firm’s external business  environment: technology, markets, and regulations.
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What’s Strategy Threat of New Entrants Threat of Product Substitution Bargaining Power of Suppliers Bargaining Power of Buyers Rivalry Among Existing Competitors
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Strategy is a Market Position Competitive Advantage Competitive  Scope Differentiation Low Cost Broad Target Narrow  Target Cost Leadership Cost Focus Differentiation Focused  Differentiation
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Strategy Based Business  Reporting Models n PwC’s value-reporting model n UIUC strategy-based auditing model n Kaplan and Norton’s balanced  scorecard n The most comprehensive and widely used  model
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PwC’s Value-Reporting
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Strategy-Based  Accounting/Auditing (UIUC) SSA Perspective on Financial Reporting
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(BSC) q What are the four perspectives on value  creation? q
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relevant metrics - RelevantMetrics Dr.JamesGong

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