Business Simulation Seminar Performance Measurements And Data Interpretation

Performance Measurements  How is the business doing? Not a qualitative question  Literally hundreds of ways to measure business performance Market share Product sales Profits Management measures Stock price Etc.

Key Measurements - Marketing  Sales How much was sold vs. forecast? Here, more is not necessarily better – why? What inventory remains?  Market share = sales / market size Target: bigger is better What is it when market share is ~100%?

Key Measurements - Operations  Plant utilization How much capacity was used? Target 150% Why?  Return on Sales (ROS) What is the profit on each unit? = net income/sales Target: > 5%  Return on Assets (ROA) How hard are the assets working? = Sales / Assets Target: 3 – 5

Key Measurements - Operations  Asset turnover How long does product sit in inventory? =COGS/Inventory Target: higher is better, except for marketing concerns  Contribution Margin How much do sales contribute to our other expenses? = gross margin/sales Target: > 30%

Key Measurements - Financial  Leverage = Assets / owners’ equity A measure of risk Target: 1.8 – means using half equity – half debt  Return on Equity (ROE) What’s the return for owners? = profit / owners’ equity What’s a good number?

Key Measurements - Financial  Current ratio Measure of financial risk = current assets / current liabilities Target: > 1 Target depends upon type of business  Target for simulation  Some businesses may be < 1  Stock price Are our shareholders happy? Target: The higher the better

Performance Measurements  Look at a few companies’ financials Microsoft General Motors Apple Sony