Stacyu08a1 - Performance Factors 1 Performance...

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Performance Factors 1 Performance Factors-u08a1 Jennifer Stacy December 6, 2010 Maureen Steinwall
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Performance Factors 2 Scenario 1: If you were general manager of a division, on which three key ratios would you choose to have your unit’s financial performance evaluated? Please explain your choices and why you selected these ratios, and the yardsticks (benchmarks) that you would use to measure your company’s performance. Perhaps the types of ratios most often used and considered by those outside a firm are the profitability ratios. Profitability ratios provide measures of profit performance that serve to evaluate the periodic financial success of a firm. One of the most widely-used financial ratios is net profit margin, also known as return on sales. Return on sales provides a measure of bottom- line profitability. For example, a net profit margin of 6 percent means that for every dollar in sales, the firm generated six cents in net income. Two other margin measures are gross profit margin and operating margin. Gross margin measures the direct production costs of the firm. A gross profit margin of 30 percent would indicate that for each dollar in sales, the firm spent seventy cents in direct costs to produce the good or service that the firm sold. Operating margin goes one step further, incorporating nonproduction costs such as selling, general, and administrative expenses of the
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This note was uploaded on 12/09/2010 for the course BUS BUS3060 taught by Professor Steinwall during the Fall '10 term at Kaplan University.

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Stacyu08a1 - Performance Factors 1 Performance...

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