Ch 23 404 - Chapter 23: Performance Measurement,...

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Chapter 23: Performance Measurement, Compensation, and Multinational Considerations Belief systems Lever of control that articulates the mission, purpose, norms of behaviors, and core values of a company intended to inspire managers and other employees to do their best Boundary systems Lever of control that describes standards of behavior and codes of conduct expected of all employees, especially actions that are off-limits Current cost Asset measure based on the cost of purchasing an asset today identical to the one currently held, or the cost of purchasing an asset that provides services like the one currently held if an identical asset cannot be purchased Diagnostic control systems Lever of control that monitors critical performance variables that help managers track progress toward achieving a company’s strategic goals. Managers are held accountable for meeting these goals Economic value added (EVA) A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".) EVA = After-tax Operating Inc. – [WACC * (Total Assets – Current Liabilities)] Imputed costs Costs recognized in particular situations but not incorporated in financial accounting records Interactive control systems Formal information systems that managers use to focus organization attention and learning on key strategic issues Investment Resources or assets used to generate income Moral hazard Describes situations in which an employee prefers to exert less effort (or to report distorted information) compared with the effort (or accurate information) desired by the owner because the employee’s effort (or validity of the reported information) cannot be accurate monitored and enforced Residual income (RI) Accounting measure of income minus a dollar amount for required return on an accounting measure of investment Return on investment (ROI or sometimes known as ROA) An accounting measure of income divided by an accounting measure of investment. See also accrual accounting rate of return or ROA Income / Investment or
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ROS x Investment (or Asset) Turnover = ROI Return on sales (ROS) Evaluates a company’s operating efficiency . Also known as the firm’s operating profit margin . Asset turnover The amount of sales generated for every dollar’s worth of assets. Revenues / Assets Asset turnover measures a firm’s efficiency of using its assets in generating sales or revenue – the higher the number the better. Return on equity (ROE) The amount of net income as a percentage of shareholders equity. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. Net Income / Shareholder’s Equity
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This note was uploaded on 10/13/2010 for the course ACCTG 404 at Pennsylvania State University, University Park.

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Ch 23 404 - Chapter 23: Performance Measurement,...

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