The Performance Prism is a second generation performance measurement and management framework that has been developed by Neely, Adams and Kennerley to further aid organisations in their pursuit of measuring the overall performance of their operations. The creators of this model suggest that for organisations operating within almost any given industry, the most important aspect of management is to deliver on the expectations of the stakeholders associated with that organisation. The Performance Prism is designed to help with the complex relationships that organisations often possess with their various stakeholders within the context of its operating environment. It provides an innovative and holistic framework that directs management attention to what is important for long term success and viability and helps organisations to design, build, operate and refresh their performance measurement systems in a way that is relevant to the specific issues that they face within their given industry. This model attempts Continue reading
Financial Management Concepts
Qualitative Characteristics of Financial Statements
The financial statement should contain information “sufficient in quantity and quality to satisfy the reasonable expectations of the readers to whom it is addressed”. According to the sentence, it is means that the financial statement should contain useful and meaningful information which included quantity and quality so that the reader who we make the financial statement to the person knows and understand it. How we achieve the quality information? Actually there are four qualitative characteristics of financial statements. The four characteristics are understandability, relevance, reliability, and comparability. First, understandability is including taking into consideration users’ abilities, and aggregation and classification of information. Relevance is including having predictive value and confirmatory value. Next, Reliability is including faithful representation, being natural, free form material error, complete, and prudent. Comparability is including consistency and disclosure. All the characteristics are attributes that make the information provided in financial statements are useful to users. Understandability Continue reading
Cost Audit – Definitions, Objectives, Advantages and Limitations
Cost audit is an audit process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilization of material or labor or other items of costs, maintained by the company. In simple words the term cost audit means a systematic and accurate verification of the cost accounts and records and checking of adherence to the objectives of the cost accounting. As per ICWA London’ “cost audit is the verification of the correctness of cost accounts and of the adherence to the cost accounting plan.” The ICWAI defines cost audit as “system of audit introduced by the government of India for the review, examination and appraisal of the cost accounting records and attendant information required to be maintained by specified industries” From above definition of cost audit, it is clear that cost audit is a systematic examination of cost accounts to verify correctness Continue reading
Capital Structure Change
What should a firm do when it finds that its desired capital structure differs significantly from its current capital structure? There are two basic choices: change its capital structure slowly or change it more quickly. A firm can alter its capital structure slowly by adjusting its future financing mix appropriately. For example, suppose a firm’s target capital structure consists of 35% long-term debt and 65% common equity, and its current capital structure consists 25% long-term debt and 75% common equity. The firm could cure the under leveraged condition by using long-term debt for all new external financing until the long-term debt ratio reached 35%. However, this means that the firm’s capital structure would continue to be “suboptimal” while the firm changed it over time. Alternatively, the firm can change its capital structure quickly through an exchange offer, recapitalization offer, debt or share repurchase, or stock-for-debt swap. Of course, such a Continue reading
Income Statement or Profit and Loss Account – Meaning, Format and Explanation
The earning capacity and potential of the firm are reflected by the Income Statement or the Profit and Loss Account. The profit and loss account is the “scoreboard” of the firm’s performance during a particular period of time (usually one year). Since it reflects the results of operations for a period of time, it is a flow statement. In contrast, the balance sheet is a stock, or status statement as it shows assets, liabilities and owners’ equity at a point of time. The profit and loss account presents the summary of revenues, expenses and net income (or net loss) of a firm for a period of time. Net income is the amount by which the revenues earned during a period exceed the expenses incurred during that period. If the firm’s operations prove to be unprofitable, total expenses will exceed total revenues and the difference is referred to Continue reading
Capital Budgeting- Definition, Nature and Procedure
Meaning of Capital Budgeting Capital expenditure budget or capital budgeting is a process of making decisions regarding investments in fixed assets which are not meant for sale such as land, building, machinery or furniture. The word investment refers to the expenditure which is required to be made in connection with the acquisition and the development of long-term facilities including fixed assets. It refers to process by which management selects those investment proposals which are worthwhile for investing available funds. For this purpose, management is to decide whether or not to acquire, or add to or replace fixed assets in the light of overall objectives of the firm. What is capital expenditure, is a very difficult question to answer. The terms capital expenditure are associated with accounting. Normally capital expenditure is one which is intended to benefit future period i.e., in more than one year as opposed to revenue expenditure, the Continue reading