Business Simulation Seminar

Performance MeasurementsAnd

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 – 2.5 2.0 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 2-2.5 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