Managers need to assess the performance of their company to determine whether they are moving in the right direction or if something needs to be changed. Managers must, therefore, understand the concept of performance assessment and know how to perform its and at what time. Different organizations have their unique approaches to performance assessment depend on its operations and the suitability of the procedure. A company can use eight performance measures. An organization can select one or a combination of the steps in its effort to understand how it is doing.
Cumulative Profits
A company can decide to accumulate its profits over a specified timeframe. Companies, in this case, determine the timetable for cumulating the benefits before they can sum the total profit for the period. Some organization can cumulate their monthly profits or quarterly, half-yearly, annually or even a longer term. The income earned by the company or a segment is then cumulated to obtain the total revenues for the period. The company then deducts all the expenses incurred to generate the income. Some of the common costs include administrative expenses, salaries and wages, interests, taxes and other distributions. The obtained figure is the increasing profits for the period. Cumulative profits are used by the company to determine how profitable it is and whether it should continue operating in a market or if something needs to be done to change the current situation. Walmart cumulates its profits on a quarterly basis and makes a comparison between one quarter and the other. Similarly, the company compares each quarter's performance with a similar period in the previous year.
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Ending Market Share
The market share of a company is the percentage of the total sales by companies in the industry or the market that a company commands. The market share can be determined by dividing the total sales in a period by the industry sales volume at the same time. The percentage obtained from the calculation Indicates the size of the market controlled by the company and its influence in the industry. An entity must record its market share for a given period and determine the trend in the ending market share. An increase in the ending market shares requires companies to devise approaches that will maintain or even enhance the growth. A decline in the ending market share must be analyzed to determine the cause and appropriate measure that will reverse the trend. Such analysis must also consider external factors and their contribution to the reported change. Walmart is the biggest retailer in the world. The company computes its ending market share and compares it with historical values to determine the trend and take corrective action if the market share declines.
Average ROS
The return on sales of a company or profit margin is a measure used to determine the efficiency of a company in generating profits from its sales. Any organization requires a high-profit margin since it implies that the company is utilizing its resources to create more income. Companies use this measure to determine the profitability of a market and to make short term and long term decisions concerning future undertakings Walmart benefits from a high average return on sales because it benefits from economies of scale and also controls a sizeable and profitable market share in different countries.
Average Asset Turnover
Asset turnover measures the value of a company's relative to its assets. It is used to determine the efficiency through which the company’s assets are used to generate sales. A higher turnover indicates between performances since a company is making more sales using fewer assets. Walmart uses assets turnover to determine how efficient the management is using the assets of the company. The company computes asset turn over every quarter and compares with historical data to determine whether the company is performing as anticipated.
The average return on Asset
The yield on asset is a measure used to determine the performance of a company by comparing the profits made by a company against the assets used to generate such profits. A higher ROA implies that the company is efficiently using its assets to create more profits (Lumby, 2015). Walmart uses its ROA to determine whether it is generating adequate earnings from its assets. Similarly, it compares historical and industry ROA to identify current trends and whether there are significant differences.
Average Return on Equity
Average ROE is used by companies to determine the profits generated by from its shareholder's equity. A company with a higher ROA utilizes its shareholder's equity to create more revenues for its shareholders. Investors use ROE to compare companies in the industry to enhance their decision making. Walmart calculates its ROE using its income recorded in the income statement. The company compares historical and industry ROE to establish whether it is within the range...
Ending Stock Price
It is the average price per share for the financial year closing balance at the exchange where such stock is traded. A company can use its historical stock prices and for comparison purposes (Lumby, 2015). A company that maintains continuous growth is assumed to be performing better than one whose stock is declining. The reason why a stock will continue rising is due to the fundamentals held by the company and the management philosophy. Walmart can have an increasing average closing stock due to its international image and a strong brand name.
Ending Market Capitalization
Market capitalization is the value of a company’s outstanding shares. It indicates the total worth or the value of an organization. A company with a high market capitalization is perceived to be a better performer compared to one with lower market capitalization. Walmart can use this measure to determine its total worth in the industry.
From the above discussion, the eight measures can be used to measure the performance of the company. However, some of the measures are stronger than others. The eight can be ranked as follows; average return on equity, the average return on assets, ending market capitalization, Average asset turns over, Ending market share, average ROS, cumulative profits and ending stock price (Lumby, 2015). The reason for ranking the measures in this order is the ability to maximize wealth for its shareholders. Three measures that are critical return on equity, market capitalization, and market share. The three sows the growth of a company and its ability to generate wealth for its shareholders. A cost leadership strategy will be the most appropriate for this company.
References
Choi, J., Hecht, G., & Tayler, W. (2012). Lost in Translation: The Effects of Incentive Compensation on Strategy Surrogation. The Accounting Review , 87 (4), 1135-1163. doi: 10.2308/accr-10273
Gehani, R. (2013). Innovative Strategic Leader Transforming From a Low-Cost Strategy to Product Differentiation Strategy. Journal Of Technology Management & Innovation , 8 (2), 144-155. doi: 10.4067/s0718-27242013000200012
Lumby, S. (2015). Corporate Finance . Cengage Textbooks.
Morard, B., Stancu, A., & Jeannette, C. (2015). A Comparison between Two Balanced Scorecards: Optimal vs. Kaplan and Norton Model. Journal Of Economics, Business, And Management , 3 (2), 302-308. doi: 10.7763/joebm.2015.v3.199
