Question

a) List 1 financial measure
b) Explain why do you think it's important to measure it.

No actual/fictitious number is required.

Answer 1

ans) a . FINANCIAL PERFORMANCE MEASURES TO MONITOR :

Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues . The term is also used as a general measure of a firm's overall financial health over a given period.

1) Gross profit margin : It is a profitability ratio that measures what percentage of revenue is left after subtracting the cost of goods sold. The cost of goods sold refers to the direct cost of production and does not include operating expenses , interest or taxes . In other words , gross profit margin is a measure of profitability , specifically for a product or item line, without accounting for overheads .

Gross profit Margin = (Revenue - Cost of sales ) / Revenue * 100

2) Working capital : It is a measure of the business 's available operating liquidity , which can be used to fund day- to- day operations.

Working Capital = Current Assets - Current liabilities

b.) IMPORTANCE OF FINANCIAL MEASURE:

It is important to have measures in place to monitor a wide range of 'performance indicators' in your business, so that you can identify any trends , strengths, weakness and areas of oppurtunity. These measures are commonly known as Key Performance Indicators . Implementing qualitative performance measures alongside financial measurements tends to create a balance between a company 's tangible and intangible assets. Measuring items such as service quality and customer satisfaction encourages long term financial success by increasing level of customer loyalty.