Monday, August 29, 2011

Business Intelligence: Top Managements Performance Appraisal

Business Intelligence in measuring Top Management’s Performance

In order to identify exceptional companies for investing, we must have tools to decipher between two companies managed by excellent and average managers. All business has some organizational goals and managers who work to meet the organizational shall be treated as top performing managers. It is very important that all individual managers shall perform because they are heads of their independent divisions.

The decisions taken by these individual managers are reflected in the overall performance of the organization. If the results are in line with the organizational set-goals the managers are said to be working in sync, but if results are negative it means some or all managers are doing something wrong. Investors must know how to use the financial results of the company to judge the performance of top management. It is important to note that a first grade top management can make even an average company perform like a champion. Here we will discuss some very-basic Managements performance appraisal tools.

The details of performance appraisal of top managements are available in the company’s financial reports. Here we will try to first build the basics of our readers on reading and analyzing financial reposts then we will indulge in detail on performance appraisal of top management.

The most widely used top managements performance appraisal tool used in the industry is as listed below. Perhaps there can be no tool more specific and apt to measure top managements performance appraisal than these two:

(1) Return on Investment (ROI)
      (2) Return on Equity (ROE)

These two tools (ROI & ROE) are so powerful that even it is used to set specific goals, to measure and monitor performance of organization as a whole. We will discuss how ROI and ROE can be used by investors to unearth the some intricate details about business performance.
Any body who has had even a small exposure to business and industries in general will know how much importance is paid to the following performance parameters of a company:

  1. Net Profit margin
  2. Sales turnover
  3. Total assets
  4. Liabilities / borrowed funds (debts)
  5. Stockholders equity
  6. Expenses on borrowed funds
These six parameters as listed above are required to evaluate ROI and ROE to prepare top managements performance appraisal.

Return on Investment (ROI)
Return on Equity (ROE)
Net Profit Margin
Sales Turnover
Total Assets
Liabilities / borrowed funds
Stockholders equity
Expenses on borrowed funds

Return on Investment (ROI)

Return on investment (ROI) is a measure of net profit made by the organization on the invested capital (total assets).

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