Assessing Company Performance

Assessing Company Performance

For any company in the economy, company performance is very crucial. The Simulaprise Company, hand in hand with the stakeholders expects an outstanding performance from the firm. Improvement in profits and revenues are the main objectives for all small organization owners and the progress of the company towards these aims is applied to assess the performance of the business. However, the satisfaction of the employee and customer will determine a lot regarding the performance of the company. Moreover, there are also extra aspects that are used to assess organizational performance. Positive performance is always accepted and in most scenarios will show the profits being incurred by the company. When a firm is incurring losses, it is normally associated with poor and negative performance. The discussion below shows various performance measures.

Cumulative profits over the years (for example a ten-year period) suggest how Simulaprise Company has been profitable over the years. However, cumulative profit does not give a lot of info concerning the performance of the firm because net profit is affected by accounting treatment. This accounting treatment encompasses the non-cash assets such as depreciation policy, the gain/losses that are unrealized because of the variation in taxation policy (deferred tax, MAT), foreign currency, and additional extraordinary gains or losses. This measure uses a cost strategy. The firm having the highest number of assets will produce extra profits (Glen & Pinto, 2004). When the assets of Simulaprise Company and its competitors are held constant, the firm having higher efficiency will be more profitable. Therefore, the cumulative profit level will provide us with a clear view of the performance of the Simulaprise Company. Based on this discussion, cumulative profit is one of the measures to base Simulaprise Company’s performance since an increase in cumulative profits shows performance improvement.

Ending the market share is an indicator of the general position of a company versus its competitors. Ending market share is normally formulated by the number of customers a firm has during the end of its fiscal year. Each company has an expectation that it will have new customers each year. Generally, market share is normally driven by the firm diversification of offerings within the segments of the product. More so, the willingness of the firm management to sacrifice its margin to gain market share. When there is a rise in the number of customers of Simulaprise Company during the finale of the year, this shows an increase in company performance.

Average ROS is an indicator of the company’s operating performance and is calculated by dividing operating profit (EBIT) by sales. It is also a ratio that is largely used to assess the operational efficiency of the company that in return contributes to the firm performance. ROS is also referred to as the company’s operating profit margin. When ROS is increasing, it means that the Simulaprise firm is growing efficiently and more importantly it is financially stable which is an indication of improved company performance.

Average assets turnover refers to the ratio of the number of revenues or sales made by a firm relative to its total assets value. This ratio is in most cases applied as an indicator of the effectiveness with which a firm is arraying its resources to generate revenue (Silva, Neves, & Horta, 2016). This ratio measures how efficient company management is in transforming its capital expenditures into sales. This ratio ensures that there is a balance between conforming capital expenditure and the sales growth targeted for the creation of assets. The average assets turnover ratio is used to assess the company’s performance since the higher the ratio, the better the performance of the company.

Average ROA is a performance measure of the firm though it does not give any information concerning a standalone basis. This measure gives little attention to the growth of sales funded by a rise in the assets base. Average ROA pays attention to the reduction of capital expenditure on assets and improving profitability. ROA indicates the ability and measure of organizational competence in producing of returns from its assets deprived of being impacted by the financial choices of the management. When ROA is declining, it means that there is trouble around the corner more importantly regarding the growth of Simulaprise Company. A good company performance is indicated by a rising average ROA.

Average ROE refers to the total amount of net income returned as a percent of the equity shareholders. Average ROE is normally confused with average ROA, but they are entirely different. The difference between average ROA and average ROE is that average ROA uses debt in its denominator during calculation (Gitman & Zutter, 2015). Return on equity calculates the profitability of the firm by indicating the amount of profit to be generated by a company with the number of money shareholders have invested. When the average return on equity increases, it means that the company is experiencing high performance. Based on this, it is another measure on which a company can base its performance.

Ending stock prices shows how normal investors identify the general performance of an organization. This measure uses a differentiation strategy since it bases market price by studying it in conjunction with the firm book value. Simulaprise Company gets money from the security market only if it sells first its securities to the public in the general market. The main firm that gives the stock does not participate in any losses or gains coming from the dealings since the organization has no vested monetary interest. Despite this, the stock prices inform a lot concerning the performance of the company by deciding the number of shareholders supposed to invest in it. A firm which its balance sheet is effective and can reinvest its total profit into the organization’s business, the book value will become close to the market price. However, market price and book value differ considerably because of different externalities.

Ending market capitalization is calculated by multiplying the outstanding shares with the existing market prices of each share. It is an important indicator of the value of the firm among the shareholders (Glen & Pinto, 2004). An organization that has high liquidity and a large shareholder base can boost its equity fast compared to firms with high share prices and illiquid markets. A high ending market capitalization value shows a better company performance.

In conclusion, it is necessary to assess the performance of the Simulaprise Company so that effective decisions can be made. Based on the discussion and the goals of Simulaprise Company, the best strategy to use is cost strategy since it concentrates on maximizing profits. By ranking the measures in the order of importance, Simulaprise Company will be able to choose the most appropriate strategies. The measures are Cumulative profits, ending market share, average ROS, average assets turnover, average ROA, average ROE, ending stock prices, and ending market capitalization. The three measures to choose among the eight are cumulative profits, ending market share, and average ROS. The reason for picking cumulative profits it’s because this measure uses cost strategy. The firm having the highest number of assets will produce extra profits. On the other hand, ending market share is based on the number of customers which means that an increase in the number of customers at the end of the year shows an increase in company performance. Hence, Simulaprise Company will concentrate on strategies to improve the number of customers it has. Lastly, the reason for average ROS it’s because it is a ratio between profits and sales. When ROS is increasing, it means that the firm is growing efficiently and more importantly it is financially stable.

References

Gitman, L. J., & Zutter, C. J. (2015). Principles of managerial finance. Boston: Pearson.

Glen, J. D., & Pinto, B. (2004). Debt or equity? : how firms in developing countries choose. Washington, D.C: World Bank.

Silva, A. D., Neves, R. F., & Horta, N. (2016). Portfolio Optimization Using Fundamental Indicators Based on Multi-Objective EA. Cham: Springer International Publishing.

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Instructions

In your MBA program, you learned about how operations relate to business strategy and you learned how to manage business operations based on a global supply chain with diverse and geographically dispersed suppliers and customers.

There are several ways to assess your company’s performance in the simulation, including the following:

1. Cumulative Profit
2. Ending Market Share
3. Average ROS
4. Average Asset Turnover
5. Average ROA
6. Average ROE
7. Ending Stock Price
8. Ending Market Capitalization

This assignment discusses each of these eight performance measures in terms of what they measure and how they determine company performance. Then, relate them specifically to the company that you are working with by providing an example for each in regard to that company. Then, you will rank these in order of importance in terms of measuring performance and explain why they are ranked the way they are. Choose three measures to base company performance on, given your company in the simulation, and discuss why you chose these measures. Finally, you will choose your strategy for your company in this simulation, whether it is a differentiation strategy or a cost strategy.

Length: 3-5 pages not including title page and references

Your response should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic.