Which of the following is the most commonly used financial performance measure?

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Abstract

Refined economic value added (REVA) provides an analytical framework for evaluating operating performance measures in the context of shareholder value creation. Economic value added (EVA) performs quite well in terms of its correlation with shareholder value creation, but REVA is a theoretically superior measure for assessing whether a firm's operating performance is adequate from the standpoint of compensating the firm's financiers for the risk to their capital. In this article, comprehensive statistical analysis of both REVA and EVA is used to estimate their correlation with and their ability to predict shareholder value creation. REVA statistically outperforms EVA in this regard. Moreover, the realized returns for the 1988-92 period for the top 25 REVA firms were higher than the realized returns for the top 25 EVA firms.

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1. The purposes of performance measurement are to: i. communicate company strategies to employees ii. identify problem areas iii. act as a guide to future strategies iv. identify key performance indicators

A. i, ii and iii B. ii, iii and iv C. i, ii and iv D. All of the given answers

1. Which of the following statements is/are false?

A. Performance measures identify problem areas. B. Performance measures are essential to determine a firm's profitability. C. Performance measures form the basis for rewards. D. All of the given answers

1. Which of the following do conventional measurement systems include? i. Profitability ii. Return on investment iii. Cost variance analysis iv. Budget variance analysis

A. i, ii and iii B. ii, iii and iv C. i, iii and iv D. All of the given answers

1. Which of the following statements are problems associated with conventional performance measures? i. They may encourage short-term financial performance. ii. They describe results not causes. iii. They do not emphasise areas that need development for long-term goal achievement.

A. i and ii B. ii and iii C. i and iii D. All of the given answers

1. Which of the following are likely to be the result of concentration on short-term financial measures? i. Reduced expenditure on product development ii. Increased spending on new technology iii. Increased employee training iv. Reduced marketing effort

A. i and ii B. i and iii C. i and iv D. ii and iv

1. All the following are methods of comparison used in performance measurement. Which are inadequate as contemporary measures? i. Standard costs ii. Past periods iii. Budget targets iv. Benchmarks

A. i, ii and iv B. ii, iii and iv C. i, iii and iv D. i, ii and iii

1. Which of the following statements is/are true?

A. Non-financial measures may reflect drivers of future financial performance. B. Non-financial measures are more difficult to understand. C. Non-financial measures are more difficult to action. D. Non-financial measures may reflect drivers of future financial performance AND and non-financial measures are more difficult to understand.

1. Employee satisfaction, absenteeism and employee suggestions implemented are measures related to:

A. financial perspective B. customer perspective C. internal business processes D. learning and growth

1. Performance measures, which include cost, product quality and manufacture cycle time, are related to:

A. financial perspective B. customer perspective C. internal business processes D. learning and growth

1. Performance measures, including shareholder value, residual value and cash flow are related to:

A. financial perspective B. customer perspective C. internal business processes D. learning and growth

15 .

Which of the following are used by most successful organisations when evaluating performance?

Financial performance measures Non-financial performance measures

A. No Yes B. Yes No C. Yes Yes D. To a limited degree only Yes

1. An increasingly popular approach that integrates financial and customer performance measures with measures in the areas of internal operations and innovation is known as:

A. the integrated performance measurement tool B. the balanced scorecard C. integrated efficiency D. benchmarking

1. Southern Cruises Ltd, which operates in a very competitive marketplace, is considering four categories of performance measures: (i) profitability (ii) customer satisfaction (iii) efficiency and quality and (iv) innovation. The company assigns one manager to each ship in its fleet to oversee the ship's general operations. If Southern Cruises Ltd desired to adopt a balanced scorecard approach, which measures should it use in the evaluation of managers?

A. i and ii B. ii and iii C. i, ii and iv D. All of the given answers

1. Measures that monitor the progress towards the organisation's goals are called:

A. lead indicators B. lag indicators C. benchmark indicators D. progress indicators

1. Measures that monitor the factors that drive outcomes are called:

A. lead indicators B. lag indicators C. benchmark indicators D. cause and effect indicators

1. Market share may be a lead indicator from:

A. a financial perspective B. a customer perspective C. internal business processes D. learning and growth

1. Market share may be a lag indicator from:

A. a financial perspective B. a customer perspective C. internal business processes D. learning and growth

1. Which of the following statements is/are true? i. A Du Pont chart includes lag indicators for revenue measures. ii. A Du Pont chart includes lead indicators for costs. iii. A Du Pont chart fails to show any relationship between cost and invested capital. iv. A Du Pont chart clearly shows the relationship between lead indicators and invested capital.

A. i, ii and iii B. ii, iii and iv C. i, ii and iv D. All of the given answers

1. The steps to be taken in the benchmarking process are: i. establishing performance goals ii. identifying functions or activities to be benchmarked iii. implementing plans iv. data collection and analysis v. selecting benchmark partners What is the correct sequence of these steps?

A. i, ii, iii, iv and v B. ii, v, iv, i and iii C. iii, ii, i, v and iv D. ii, v, i, iv and iii

1. The extent to which a business needs to improve to reach best practice is termed:

A. performance target B. performance goal C. performance gap D. performance driver

1. Benchmarking that involves comparison with firms with similar interests and technologies is termed:

A. competitive benchmarking B. industry benchmarking C. process benchmarking D. external benchmarking

1. Benchmarking that involves comparison with best practices that occur in any industry is termed:

A. internal benchmarking B. industry benchmarking C. process benchmarking D. external benchmarking

1. Normalisation is used to remove the effects of factors outside the control of the organisation in:

A. competitive benchmarking B. industry benchmarking C. process benchmarking D. external benchmarking

1. Which is the easiest form of benchmarking to establish?

A. Competitive benchmarking B. Internal benchmarking C. Industry benchmarking D. Process benchmarking

1. An important concern for all companies in competitive markets is to access competitors' costs. It is clear that competitors will not willingly supply cost data and thus other sources need to be explored. Which of the following may be used to identify competitors' costs?

A. Publicly available data such as sales volume, market share and product mix B. Industry databases C. Company reports and analyses from stockbrokers D. All of the given answers

1. One of the signs that a firm's performance measurement system is inadequate is when no one notices when reports are not supplied. For which of the following reasons may this occur? i. Reports are too detailed ii. Reports are too summarised iii. Reports are too late iv. Reports focus on the wrong factors

A. ii, iii and iv B. i, ii and iv C. i, iii and iv D. All of the given answers

1. Which of the following statements is/are true? i. The more performance measures there are the better the outcome is likely to be. ii. Reward systems are more reliable if they are separated from the performance measurement system. iii. It is better to wait until comprehensive information is available for a performance report than to issue it promptly with less comprehensive information.

A. i and ii B. i and iii C. ii and iii D. None of the given answers

1. Which of the following statements are true in respect to continuous improvement? i. Some companies focus their efforts to improve performance on specific problem areas. ii. Companies should set an increasingly difficult targets to motivate employees to improve their performance continuously. iii. It is inappropriate to change performance measures on short-term cycles, such as monthly.

A. i and iii B. ii and iii C. i and ii D. All of the given answers

1. Which of the following statements most correctly completes the following sentence that identifies some of the limitations of traditional management accounting? ‘Traditional management accounting focuses on ...'

A. financial performance measures, labour-related activity measures and cost elimination. B. financial performance measures, volume-related activity measures and cost control. C. non-financial performance measures, labour-related activity measures and cost elimination. D. financial performance measures, labour-related activity measures, cost elimination, volume-related activity measures and cost control.

1. Which of the following statements is most correct about the selection of performance measures?

A. The key stakeholders are the owners of the firm and therefore financial performance measures will always be the most crucial. B. In today's environment, firms are likely to have an appropriate mix of both financial and non-financial performance measures. C. In the contemporary manufacturing environment, it is likely that non-financial performance measures will replace financial performance measures. D. Because of the focus on critical success factors, it is likely that non-financial performance measures will replace financial performance measures.

1. Assuming you must choose one measure only, which of the following non-financial performance indicators would most likely be chosen to measure employee satisfaction?

A. Number of repeat orders B. Percentage of absenteeism C. Number of complaints about service D. Percentage of idle time

1. Assuming you must choose one measure only, which of the following non-financial performance indicators would most likely be chosen to measure quality?

A. Number of repeat orders B. Percentage of absenteeism C. Machine downtime D. Percentage of idle time

1. Assuming you must choose one measure only, which of the following non-financial performance indicators would most likely be chosen to measure satisfaction with delivery?

A. Number of repeat orders B. Percentage of absenteeism C. Number of complaints about service D. Units produced

1. Assuming you must choose one measure only, which of the following non-financial performance indicators would most likely be chosen to measure productivity?

A. Units produced per month B. Number of repeat orders C. Percentage of absenteeism D. Percentage of idle time

1. Assuming you must choose one measure only, which of the following non-financial performance indicators would most likely be chosen as a measure of the production process?

A. Number of repeat orders B. Percentage of idle time C. Percentage of absenteeism D. Number of complaints about service

1. Benchmarking exercises are most likely to focus on:

A. production activities of the firm B. activities of the firm that are reported in financial performance measures C. factors which are identified as critical success factors for the firm D. items the firm has identified as one of its ‘weaknesses' in a SWOT analysis

1. Which of the following comments best describes the appropriate application of benchmarking to a medium-sized Australian company with a range of products and services specifically designed for local conditions and demands?

A. In the absence of a valid basis for comparison, benchmarking is unlikely to be informative in this case. B. Benchmarking should be based on world best practice for the nearest equivalent organisation. C. Efforts should be made to compare particular activities and processes with similar processes elsewhere, allowing for differences in the business environment. D. The use of benchmarking may inhibit originality in meeting the special features and unique needs of the firm's market.

1. The management accountant at Kaster Furniture Makers decides to include the following measures on their balanced scorecard (BSC): customer satisfaction, rework costs, on-time delivery, average shopfloor personnel qualification and sales growth in local markets. These measures belong to which BSC perspectives?

A. Financial perspective Sales growth in the local markets

Internal business process perspective On-time delivery, customer satisfaction Customer perspective Learning and growth perspective Rework costs, average shopfloor personnel qualification B. Financial perspective Sales growth in the local markets

Internal business process perspective Rework costs Customer perspective On-time delivery, customer satisfaction

Learning and growth perspective Average shopfloor personnel qualification C. Financial perspective Rework costs

Internal business process perspective On-time delivery Customer perspective Sales growth in the local markets, customer satisfaction

Learning and growth perspective Average shopfloor personnel qualification D. Financial perspective Sales growth in the local markets;Rework costs

Internal business process perspective On time delivery; Average shopfloor personnel qualification Customer perspective Customer satisfaction

Learning and growth perspective

1. The internal business process perspective of a balanced scorecard may contain which of the following set of performance measures?

A. Sales force efficiency, percentage of warranty claims, number of employees completed internal training B. Defect costs, employee satisfaction rating, number of customer complaints C. Sales force efficiency, scrap costs, percentage of machine downtime D. Number of incorrect deliveries to customers, production cycle time, profit margin

1. Which of the following is the most appropriate lead indicator in relation to ‘customer satisfaction rating'?

A. Market share B. Number of customer complaints C. Percentage of on-time delivery D. Sales growth

1. Which of the following is the most appropriate lag indicator in relation to ‘customer satisfaction rating'?

A. Sales growth B. Number of customer complaints C. Percentage of employees with tertiary qualifications D. Percentage of on-time delivery

1. Which of the following is the most appropriate lag indicator in relation to ‘percentage of products passed final quality inspection'?

A. Percentage of machine downtime B. Number of customer complaints C. Percentage of on-time delivery D. Number of employees completed quality training

1. Which of the following about a strategic performance measurement system (SPMS) is incorrect?

A. It is a system that focuses on translating a strategy into financial and non-financial measures. B. SPMS requires linking performance measures in cause-and-effect relationships. C. SPMS always require the development of a strategy map first, followed by a balanced scorecard. D. SPMS can be used by non-profit organisations.

1. Conventional performance systems Indicate the problems that may arise with conventional performance systems. 

2. Contemporary measurement systems What are the essential characteristics of contemporary measurement systems? 

3. Balanced scorecard Explain the fundamental characteristics of a balanced scorecard. 

4. Benchmarking Explain the different ways which benchmarking may be achieved and the limitations of each. 

5. One of the problems with the conventional accounting system is that it is common to measure current performance against the previous year's performance, which is not an indicator that the business's performance is good enough.

True    False

1. The perspectives that are generally considered with the balanced scorecard are the same regardless of whether the business is a profit or not-for-profit concern.

True    False

1. In production, the time taken to get materials and machinery ready for a run is termed set-up time.

True    False

1. Some of the measures that can be used for measuring competitiveness include market ratios, capital structure and liquidity.

True    False

1. The Du Pont chart identifies linkages between key performance drivers, key performance indicators and financial performance measures.

True    False

1. Strategy maps are useful for explaining the cause-and-effect relationships that link business processes and resources.

True    False

1. Performance measures can be used by senior management to evaluate staff member's performance upon which rewards can be based.

True    False

Chapter 14 Testbank Key

1.

(p. 642)

The purposes of performance measurement are to: i. communicate company strategies to employees ii. identify problem areas iii. act as a guide to future strategies iv. identify key performance indicators 

A.  i, ii and iii B.  ii, iii and iv C.  i, ii and iv D.  All of the given answers

AACSB: Reflective Difficulty: Easy Learning Objective: 14-01 Describe the purposes of performance measurement systems

1. (p. 642)

Which of the following statements is/are false? 

A.  Performance measures identify problem areas. B.  Performance measures are essential to determine a firm's profitability. C.  Performance measures form the basis for rewards. D.  All of the given answers

AACSB: Reflective Difficulty: Medium Learning Objective: 14-01 Describe the purposes of performance measurement systems Learning Objective: 14-02 Explain why conventional financial performance measures are not sufficient for managing an organisation

1. (p. 642)

Which of the following do conventional measurement systems include? i. Profitability ii. Return on investment iii. Cost variance analysis iv. Budget variance analysis 

A.  i, ii and iii B.  ii, iii and iv C.  i, iii and iv D.  All of the given answers

AACSB: Reflective Difficulty: Easy Learning Objective: 14-02 Explain why conventional financial performance measures are not sufficient for managing an organisation

4.

(p. 642)

Which of the following statements are problems associated with conventional performance measures? i. They may encourage short-term financial performance. ii. They describe results not causes. iii. They do not emphasise areas that need development for long-term goal achievement. 

A.  i and ii B.  ii and iii C.  i and iii D.  All of the given answers

AACSB: Reflective Difficulty: Easy Learning Objective: 14-02 Explain why conventional financial performance measures are not sufficient for managing an organisation

1. (p. 642)

Which of the following are likely to be the result of concentration on short-term financial measures? i. Reduced expenditure on product development ii. Increased spending on new technology iii. Increased employee training iv. Reduced marketing effort 

A.  i and ii B.  i and iii C.  i and iv D.  ii and iv

AACSB: Reflective Difficulty: Easy Graduate Attribute: Problem Solving Learning Objective: 14-02 Explain why conventional financial performance measures are not sufficient for managing an organisation

1. (p. 642)

All the following are methods of comparison used in performance measurement. Which are inadequate as contemporary measures? i. Standard costs ii. Past periods iii. Budget targets iv. Benchmarks 

A.  i, ii and iv B.  ii, iii and iv C.  i, iii and iv D.  i, ii and iii

AACSB: Reflective Difficulty: Easy Learning Objective: 14-02 Explain why conventional financial performance measures are not sufficient for managing an organisation

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