Skip to main content

Other ways to assess financial health

Beyond profitability, operating, leverage ratios, and valuation - other ways of evaluating the financial health of a company include Economic Value Added (EVA), and assessing growth and productivity.

Like the ratios described above, all of these measures are most meaningful when compared against the same measures for other companies in that particular industry.
  • Economic value added (EVA): This concept was introduced as a way to induce employees to think like shareholders and owners. It is the profit left over after the company has met the Cost of Capital—the expectations of those who provided the capital. (Another way to describe Cost of Capital is that it is the weighted cost average to the company of acquiring debt and equity financing.)
  •  Productivity measures: Sales-per-employee and net-income-per-employee measures link revenue and profit generation information to work force data. In so doing, they help you assess employees' effectiveness in producing sales and income.
Labels:

Comments

Post a Comment

Popular posts from this blog

Assembly To Order

Assembly to order adalah satu lingkungan proses di mana produk atau jasa di produksi ketika menerima pesanan penjualan. Mempunyai stock terhadap material kunci di dalam mengantisipasi pesanan penjualan. Urutan Produksi di sesuai dengan urutan Penerimaan pesanan. Assembly-to-order sangat berguna ketika Finish Good Product (produk jadi) dapat dirakit dari material yang umum (mudah di dapatkan). Jika Anda menggunakan strategi Assembly to order , Anda dapat memeriksa material dan ketersediaan sumber daya pada ketika pesanan penjualan (sales order) dibuat. Anda bisa memberikan informasi tanggal pengiriman yang dapat diandalkan kepada pelanggan Anda, karena Anda tahu apakah jumlah yang diinginkan akan tersedia pada tanggal yang diinginkan atau tidak. Jika jumlah total yang diinginkan tidak dapat dilakukan, Sebuah sistem perencanaan (Planner System) pada Assembly to order  dapat memberitahukan Anda kapan jumlah total akan tersedia dan apakah Anda bisa melakukan kuantitas parsia...
Post a Comment
Read more

Sensitivity Analysis

"What-if" scenarios A budget is an action plan based on the best available information and assumptions for the future. Performing sensitivity analysis to test those assumptions or alternative options can greatly enhance the value of budgets as tools for planning and for feedback and course correction. A sensitivity analysis applies a "what-if" situation to the budget model to see the effect of the potential change on the original data. For example, what if the cost of materials rises 5% or what if sales rise 10%? Calculations for sensitivity analysis can be complicated when dealing with a master budget that has summarized multiple divisional and/or functional budgets. Software packages for financial planning models are available and commonly used to perform these calculations, giving managers a powerful tool to determine the costs and benefits of various options and possibilities. Using scenario analysis software, you can quickly see the potential im...
Post a Comment
Read more

Valuation

Wall Street investors and stock analysts scrutinize a company's financial statements and stock performance carefully in order to arrive at what they believe to be a realistic estimate of that company's value. Since a share of stock denotes ownership of a part of the company, analysts are interested in knowing whether the market price of that share is a good deal relative to the underlying value of the piece of the company the share represents. Wall Street uses various means of valuation, that is, of assessing a company's financial performance in relation to its stock price. Earnings per share (EPS) : EPS equals net income divided by the number of shares outstanding. This is one of the most commonly watched indicators of a company's financial performance. If it falls, it will likely take the stock's price down with it. Price-to-earnings ratio (PE) : The PE ratio is the current price of a share of stock divided by the previous 12 months' earnings per...
Post a Comment
Read more