Free ACCA course notes • Free ACCA lectures • Free tests • Free tutor support • StudyBuddy • Largest ACCA forums Quick ratio (or acid test) = Current assets – Inventory Current liabilities Inventory days = Inventory ×365 days Cost of sales Average collection period (receivables days) = Trade receivables × 365 days Revenue Average payment period (payables days) = Trade payables × 365 days Purchases Gearing Gearing = Long term liabilities % Shareholders’ funds 4 Limitations of ratio analysis You must learn the various ratios, however, it is important that you are able to discuss briefly the relevance of the various ratios, and also their limitations. Very few of the ratios mean much on their own – most are only useful when compared with the ratios for previous years or for similar companies. Many of the ratios use figures from the Statement of Financial Position. These only represent the position at one point in time, which could be misleading. For example, the level of receivables could be unusually high at the year end, simply because a lot of invoicing was done just before the year end. Perhaps more sensible in that sort of case would be to use the average for the year. Normally in the examination you will be expected simply to use Statement of Financial Position figures at the end of the year, but do be prepared to state the problem if relevant. June 2014 Examinations Paper F5 FINANCIAL PERFORMANCE MEASUREMENT Chapter 15 90
Free ACCA course notes • Free ACCA lectures • Free tests • Free tutor support • StudyBuddy • Largest ACCA forums Chapter 16 NON-FINANCIAL PERFORMANCE MEASUREMENT 1 Introduction We have looked separately at measures of financial performance. However, it is important to have a range of performance measures considering non-financial as well as financial matters. This is particularly important in the case of service industries where such things as quality are of vital importance if the business is to grow in the long-term. In this chapter we will consider the various areas where performance measures are likely to be needed. Various authors have summarized the areas in different ways – the two that you are expected to be aware of are Fitzgerald and Moons building blocks; and Kaplan and Nortons Balanced Scorecard. 2 Fitzgerald and Moon Fitzgerald and Moon focussed on performance measurement in service businesses. They suggested the following areas needing measures of performance: • Financial performance • Competitive performance • Quality • Flexibility • Resource utilisation • Innovation 91 June 2014 Examinations Paper F5 Free F5 lectures are available on opentuition.com
Free ACCA course notes • Free ACCA lectures • Free tests • Free tutor support • StudyBuddy • Largest ACCA forums 3 Kaplan and Norton’s Balanced Scorecard The balanced scorecard (developed by Kaplan and Norton 1992) views the business from four perspectives and aims to establish goals for each together with measures which can be used to evaluate whether these goals have been achieved.
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