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FINANCE

Explore how various measures, such as profit percentages, sales figures, market share, customer satisfaction, website hits, and internal assessments, can be used to assess and evaluate a business's performance.

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FINANCE

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  1. FINANCE Judging Business Performance

  2. How might each of the following measure performance ? A high -jumper A striker in soccer team A test match batsman A sprinter We need to be careful that we don’t think that the simple answer is the complete answer.

  3. A sprinter might run a poor time and win an Olympic gold …might it be regarded as a good performance? Is a striker’s lack of goals just down to his performance…might it be that his team is playing poorly? How might each of the following measure performance ? A high -jumper A striker in soccer team A test match batsman A sprinter

  4. Business Measures of Performance Whatever measure we use …how do we tell whether the performance is good or not ? Compare with… Any targets which have been set Past performance Other similar businesses

  5. 1. Profit Percentages This looks at the profit the business is making on its basic trading of goods …it ignores the amount the business spends on its running costs (expenses) Gross Profit Gross Profit Percentage × 100 = Sales Revenue Business Measures of Performance a) Gross Profit Percentage (aka Gross Profit Margin)

  6. 1. Profit Percentages (cont) Tells you the profit performance after the expenses have been taken into account. A net profit % of 20 % means that the business gets to keep 20p out of every £ spent over the counter on sales. Net Profit Net Profit Percentage × 100 = Sales Revenue Business Measures of Performance b) Net Profit Percentage (aka Net Profit Margin)

  7. Business Measures of Performance Exam Watchpoint !! You could have a situation where the gross profit percentage goes up but the net profit percentage goes down. This is because the expenses of the business have gone up faster than the sales… e.g. advertising may have been increased but may not have generated enough extra sales bank loan repayments have risen because of increased interest rates or

  8. Business Measures of Performance 2. Sales Figures Good point: Sales are growing not falling Watch points: The rate of growth is getting smaller in % terms

  9. 2. Sales Figures (cont) What was the firm’s target for sales ? Did it expect a slowdown or is it worse than the firm expected? Business Measures of Performance Sometimes the prices of goods generally rise over the years…(known as inflation)…the firm might well look at sales volume in this case.. i.e. how many items have been sold…it might give the firm a better idea of what is happening. Most large chains of shops collect figures on sales per square foot of selling space

  10. 3. Market Share This is the percentage share of a total market which a company has…. It tells a company how well it is doing compared with its rivals. Business Measures of Performance Grocery Trade: Tesco 30% ; Asda 17% ; Sainsbury’s 16%. Tesco’s market share has been growing whilst Sainsbury’s has been falling…causing a huge rethink by Sainsbury’s about where it is going wrong

  11. 3. Market Share (cont) Companies might well be unhappy with losing market share even if their sales were increasing… Business Measures of Performance e.g. Being Number One in a market may bring big advantages in the way that customers regard the company… “It must be good it’s the top seller” etc.

  12. 4. Customer Satisfaction A business might well develop measures based on the way they are seen by their customers Business Measures of Performance Number of customer complaints… if complaints are going down this might be taken as a sign of success Return Custom: how many customers come back to buy from the business…supermarkets etc rely very heavily on this type of business…and can track it through such things as loyalty cards

  13. 5. Hits on Website More and more business is being done on the internet Business Measures of Performance B2B Business to Business B2C Business to Consumer The number of hits on a company’s website might tell it how well its advertising/PR is working…is their message getting to potential customers?

  14. 6. Inside the Business The managers of a business would also make judgements about how well the business was working Business Measures of Performance Output per worker…known as productivity. This is a very important measure of how efficient the production is. Labour turnover….. what percentage of the workers leave each year. High figures are usually a sign of problems.

  15. 6. Inside the Business (cont) The managers of a business would also make judgements about how well the business was working Business Measures of Performance Absenteeism rates..looks at how many days off are being taken by workers. High figures usually mean that there is a problem. Number of faulty items produced…each fault will either have to be put right or the item scrapped High fault rates are costly for a business.

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