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STRATEGIC MANAGEMENT: TOPIC 5.
Ways to measure a company's performance.
o There is no one optimum method of measuring performance in a business,
however, when performance is measured it is normally done so through financial measures such as cost, sales revenues, cash flows, or more detailed accounting measures such as Return on Capital Employed, Earnings per share or movements in share price. The last few mentioned are generally only applicable to those companies whom are on the stock exchange. In addition, this would be a nonexhaustive list and there are many other ways to measure a company's performance.
What is strategic management accounting?
o This concerns strategic management accounting outside of the company, in term strategic purposes outside of the company providing analysis and management accounting data regarding a business and its competitors. This concept holds that it is necessary not only to monitor financial objectives, however, it is also important to monitor non-financial objectives, and this is the crux of this form of management accounting.
Benefits and criticisms of Financial Measures.
o Financial measures are easy and inexpensive to prepare as well as understand.
o The objective is profit and investors tend to rely on a firm's financial performance before giving funding.
o A criticism with financial measures then are that they are internally focused and not compared to another company.
o Historically, this method was focused on previous years financial situation,
however, things change and there's no point in looking at it retrospectively, its needs to be forward looking.
o In addition, it is also a short-term measure, which means there is a lack of foreseeability, in the sense that companies may start making bad decisions on the basis of the short term plan.
Combining both financial and non-financial measures.
o It is suffice to say that financial measure are inadequate in evaluating a companies performance, and the need for a more holistic approach to pin-point where things aren't going well with a solution to fix said problem.
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