Performance Measurement, Compensation, and Multinatinal ConsiderationsPerformance Evaluation
(Pengukuran Kinerja)
Chapter 23
Tujuan Pembelajaran 1
Pengukuran Kinerja
Pengukuran Kinerja
unitnya dalam sebuah laporan tunggal yakni:
–balanced scorecard.
Pengukuran Kinerja
– innovation measures
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Learning Objective 2
Design an accounting-based
Accounting-Based
with top management’s financial goal(s).
Step 2:
performance measure in Step 1.
Step 3:
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Accounting-Based
each performance measure in Step 1.
Step 5:
Step 6:
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Accounting-Based Performance
Measure Example
one each in Boston, Denver, and Miami.
At the present, Relax Inns does not
allocate the total long-term debt of
the company to the three separate hotels.
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Accounting-Based Performance Measure Example
Accounting-Based Performance Measure Example
Accounting-Based Performance Measure Example
Accounting-Based Performance Measure Example
Total current assets $1,350,000
Total long-term assets 6,150,000
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Approaches to
Measuring Performance
Return on investment (ROI)
does not measure investment.
Learning Objective 3
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Return on Investment
accounting measure of income
divided by an accounting
What is the return on investment for each hotel?
Return on Investment
÷ $900,000 Total assets = 18%
÷ $1,000,000 Total assets = 24%
÷ $5,600,000 Total assets = 21%
The DuPont method of profitability analysis
recognizes that there are two basic
ingredients in profit making:
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DuPont Method
ROI = Return on sales × Investment turnover
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DuPont Method
ROI for the Denver hotel?
Present situation: Revenues ÷ Total assets
= $1,200,000 ÷ $1,000,000 = 1.20
Operating income ÷ Revenues
= $240,000 ÷ $1,200,000 = 0.20
1.20 × 0.20 = 24%
DuPont Method
dollar of revenue constant.
DuPont Method
assets and operating income per dollar
of revenues constant.
Revenues ÷ Total assets
= $1,500,000 ÷ $1,000,000 = 1.50
1.50 × 0.20 = 30%
Operating income ÷ Revenues
= $300,000 ÷ $1,500,000 = 0.20
DuPont Method
keeping revenues and assets constant.
Revenues ÷ Total assets
= $1,200,000 ÷ $1,000,000 = 1.20
1.20 × 0.25 = 30%
Operating income ÷ Revenues
= $300,000 ÷ $1,200,000 = 0.25
Learning Objective 4
Residual Income
What is the residual income from each hotel?
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Residual Income
Boston Hotel:
Operating income $166,000 – $108,000
Learning Objective 5
Economic Value Added
Economic Value Added
Long-term assets + Current assets
Economic Value Added
following specific numbers in the RI calculations:
1. Income equal to after-tax operating income
2. A required rate of return equal to the
weighted-average cost of capital
current liabilities
Economic Value Added Example
long-term funds:
book value of $4,800,000 issued at an
interest rate of 10%
2. Equity capital that also has a market value of
$4,800,000 and a book value of $2,200,000
Tax rate is 30%.
Economic Value Added Example
Assume that Relax Inns’ cost of
equity capital is 14%.
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Economic Value Added Example
+ (14% × Market value of equity)]
÷ (Market value of debt + Market value of equity)
WACC = [(0.07 × 4,800,000)
+ (0.14 × 4,800,000)] ÷ $9,600,000
Economic Value Added Example
Boston Hotel:
Denver Hotel:
Miami Hotel:
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Economic Value Added Example
What is the investment?
– Current liabilities $50,000 = $850,000
– Current liabilities $150,000 = $850,000
– Current liabilities $300,000 = $5,300,000
Economic Value Added Example
times the investment for each hotel?
Boston Hotel: $850,000 × 10.5% = $89,250
Denver Hotel: $850,000 × 10.5% = $89,250
Miami Hotel: $5,300,000 × 10.5% = $556,50
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Economic Value Added Example
Boston Hotel: $116,200 – $89,250 = $26,950
Denver Hotel: $168,000 – $89,250 = $78,750
Miami Hotel: $806,400 – $556,500 = $249,900
The EVA® charges managers for the cost
of their investments in long-term assets
and working capital.
Return on Sales
on sales (ROS) ratio, is a frequently used
financial performance measure.
Boston Hotel: $166,000 ÷ $1,100,000 = 15%
Denver Hotel: $240,000 ÷ $1,200,000 = 20%
Miami Hotel: $1,152,000 ÷ $3,200,000 = 36%
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Comparing Performance
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Comparing Performance
Methods Ranking
Learning Objective 6
Contrast current-cost and
Choosing the Time Horizon
horizon of each performance measure.
Many companies evaluate subunits on the basis
of ROI, RI, EVA®, and ROS over multiple years.
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Choosing Alternative Definitions
for each performance measure.
Definitions include the following:
regardless of their particular purpose.
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Choosing Alternative Definitions
available minus the sum of idle assets and
assets purchased for future expansion.
3. Total assets employed minus current liabilities
– excludes that portion of total assets employed
that are financed by short-term creditors.
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Choosing Alternative Definitions
example requires allocation of the long-term
liabilities to the three hotels, which would then
be deducted from the total assets of each hotel.
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Choosing Measurement Alternatives
alternative for each performance measure.
The current cost of an asset is the cost now of
purchasing an identical asset to the one
currently held.
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Choosing Measurement Alternatives
level of performance.
measuring economic returns on new investments
and sometimes create disincentives for expansion.
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Choosing Measurement Alternatives
of feedback.
critical the information is for the…
…success of the organization.
…sophistication of the organization.
Learning Objective 7
Multinational Companies Example
Acapulco, Mexico.
December 31, 2002, is
8 pesos = 1 dollar.
Multinational Companies Example
a decline in value.
is 12 pesos = 1 dollar.
What is the average exchange rate during 2003?
(8 + 12) ÷ 2 = 10 pesos = 1 dollar
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Multinational Companies Example
= 32,000,000 pesos.
What is the return on investment in pesos?
6,200,000 ÷ 32,000,000 = 19.4%
Multinational Companies Example
6,200,000 ÷ 10 = $620,000 operating income
$620,000 ÷ $4,000,000 = 15.5%
32,000,000 ÷ 8 = $4,000,000 investment
Learning Objective 8
The Basic Trade-off
compensation includes some
performance-based incentive.
Learning Objective 9
Describe the management
organizations design better
Intensity of Incentives
be relative to salary?
that are sensitive to, or change significantly,
with the manager’s performance.
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Benchmarks
evaluate performance.
or outside the organization.
Measuring
for implementing strong incentives.
as the design of responsibility centers and the
establishment of financial and nonfinancial
measures, have as their goal better
performance evaluation.
End of Chapter 23