BA490 Business Policy and Strategy
I feel that all of the six performance measures are all useful indicators of how well a company is being managed, but if I had to pick two they would be return on equity and return on sales. Return on equity represents more profit for the shareholder’s. ROE also shows how well the business is using and managing the money. A company with high return on equity will be better off for growth in the future, increasing the value of the company. An increase return on equity normally is consistent with an increase of the firm value. This performance measure also can be used to compare with other companies. Return on sales is another effective performance indicator. This will give management the figures to see how much they are earning for a product or products. Are they gaining or losing? Is it cost effective? In table 2.1, it shows that for every dollar, Gazprom is making $38.66 where AT&T is making $15.31. This performance measure shows how efficiently and effectively the business manages the sales dollars and also is a good indicator on how well management handles costs. Return on equity is better basis to compare the performance of the companies listed because ROE represents the bigger picture of the company. It takes into account previous retained earnings. Also take in consideration profitability, asset management and financial leverage. The improved of asset efficiency, increase of profitability and proper financial leverage will produce an increase on the return on equity. The returns on sales don’t take in consideration the efficiency on how the companies used its assets. The return on sales depends on the characteristic of the company. Stock market evaluations of companies are volatile. Companies stock are highly sensitive to expectation and value will fluctuate due to rumors, news articles, and any economic or political...
References: Grant, R., & Grant, F. (2010). Contemporary strategy analysis. (7 ed., p. 38).
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