MZUMBE UNIVERSITY DAR ES SALAAM CAMPUS COLLEGEDEPARTMENT OF BUSINESS STUDIESMLM:MASTER OF LEADERSHIP AND MANAGEMENT SUBJECT: NAME: REG No. INSTRUCTOR: DATE:4TH FEBRUARY, 20181.1 IntroductionManagement performance meansachievements or outcomes achieved in relation to organizational goals set.
Howsuccessful the management has achieved the organizational objectives which aretherefore involves a clear evaluation of performance.1.2 Financial Performance MeasuresFinancial performance is theachievements or outcomes achieved in relation to monetary/economic terms. Inevaluating the financial performance, users are normally intended to analyzethe financial health of the organization for a specified period of time normallya year.
Users of financial information may have different perspectives inevaluating the financial performance of the company, but the most commonfinancial measures specific to profitability includes; · GrossProfit Margin- this measures how well the company isable to generate profit and producing at low cost as it involves money earnedafter deducting the cost of sales (direct cost). · NetProfit Margin- this measures the organizationalstrength on generating profit after deducting all cost relating to productionalso associated cost for bring the product to the market. · Returnon Capital Employed- it is the most common measure used toanalyze the profitable investments, as it influence on investors’ decision inanalyzing a profitable investment among alternatives. · Returnon Asset- this measures how the company is able to utilize theasset to generate profit as it includes net income with total assets of thecompany. The measures abovecomprises the profit generated from operations, and the profit itself isrealized after deducting all cost in all level, it is therefore worthy toclassify it as cost measures as well.1.3 Non-financial Performance MeasuresStudies have been conducted on thecontribution non financial measures to organizational performance, with otherresearchers argues that this measures have a significant impact on firmperformance while other still believing on the traditional approach. Butstudies supporting this approach have recognizing the significant impacts madeby product quality, customer satisfaction, product innovation and leadership infirm performance.
In the study conductedby Gijsel (2012) argued that, managers have been increasing reliance on nonfinancial measures by revealing that these measures are better off during theeconomic crises and are also vital in evaluating firm future performance. 1.4 Results Based ObjectivesResult Based on objectives is amanagement strategy that is aimed at achieving a significant change in the waythe company operates as the central target is to improve performance throughexpected results (objective set).
Thisapproach provides a framework to management for strategic plans, riskmanagement and how to monitor and evaluate the performance. The primary purpose of this model is toimprove efficiency and effectiveness through accountability and performancereporting. For a company to succeed in this approach then they must ensure thatevery stakeholder is involved in the cycle and be defined according to theexpected results. This approach borrow from the system theory as it follow aconsequential relationships as the terms involved are not used interchangeablynor out of the series.
Inputs ? ActivitiesOutputs ? Shot-term outcome ? Medium term outcome ? Long-term outcomeThe success of thisapproach is the ability of the organization to create a management culture thatfocus on results as the model require more than the adoption of new administrativeand operational system. This involves designing a results oriented managementculture. 1.5 Balance Score Card (BSC)The BSC created by Kaplan is one of thebest known and widely used multidimensional models for measuring performanceworldwide. Its contributions to measure performance on a balanced andintegrated system using fourperspectives of an organization has made a significant stem from the oldfinancial performance measure. The importance of this model is that it recognizescustomers and employees as crucial to organizational achievements. The modelalso has given opportunity to use non financial measures by succeeding theprevious metrics such as the Economic Value added (EVA). (Kumar, 2004)This model has beenused by governments, non-profit organizations and wide business industry.
Unlikethe traditional approach which analyzes the past performance, BSC has able tosupplement both past and future performance with objectives and measuresderived from the organizations’ vision and strategy. Financial;this include measures, objectives and initiatives on how to succeed financiallyand appear healthy to their shareholders. Customer;this includes measures, initiatives and objectives on how should the companyappear to the customer and achieve their vision (customer satisfaction)InternalBusiness Processes; this includes measures, initiatives andobjectives on which business processes must the company excel at to satisfytheir customers and shareholders.Learningand Growth; this includes measures, targets,initiatives and objectives on how will the business sustain and the companyability to improve and achieve their vision.
According to Kaplan(1992), the BSC model gives the top manager a fast and wide view of theorganization’s business. The model includes measures that analyze pastperformance and future actions by establishing a balanced and integrated formbetween customer satisfaction, financial performance, innovations, improvementsand the internal processes- with all measures derived from the organization’svision and strategy.The critic of thisapproach from various researchers is that, the model is incomplete as it lacksa formal dependence on some theory of the company behavior. But the mentionlimitation cannot set off the positive contribution made by this approach. In astudy conducted by Dowing (2001), reveal that 52% of companies worldwide wereusing the BSC, with 21% planning to use and 23% considering using. 1.6 Value for MoneyValue for money is a performancemeasurement approach that has been mostly used by donors and governmentauthorities particularly in procurement and implementation of programs. Themodel has brought debate among stakeholders as cost and value has been a majorconcern.
This approach involve arelationship between efficiency, economy, effectiveness and currently equity;the 4Es. · Economy: management concern isminimizing cost to the lowest level without reducing the product quality· Effectiveness:productproduced ensure customer satisfactions· Efficiency:Maximizingoutput with low cost measures without reducing the product quality. · Equity:benefitobtained from the business is distributed equally to stakeholders. 1.7 Stakeholder Based Measures and Environmental Performance.Environmental performance has currentlybecome one of the most important factor under the corporate socialresponsibilities which consider the interest of stakeholders against theirimpacts on that society.
Companies are aware of the significance ofenvironmental issues on firm performance. The main reason to evaluateenvironmental performance is to be ensured that the company is not exposedenvironmental risks.Studies have been conducted to analyzethe impact of environment on firm performance with others with otherresearchers argues that good environmental measures also produce economicbenefits.
KeyEnvironmental Indicators includes; · Environmental impacts from company’activities · Regulatory compliance· Organizational processes (accounting,audit, reporting) 1.8 Evaluation of Suitable ApproachFrom this evaluation I recommend Balancescore card as a significant to for performance evaluation as it consideredimportant stakeholders such as employees and customers as part and parcel ofthe company success. Adding from the traditional approach, this model is ableto evaluate both past performance as well as future actions of the company. 1.9 Transfer Price and PerformanceEvaluationTransfer pricing involves a mutualpricing procedure on goods and service between tow companies or divisions ofthe organizations. The term involves setting, analyzing, documenting andadjusting for changes that are made between the two division on goods andservices supplied.
Companies normally use transfer pricing for saving on tax,remittance of dividend, changes in exchange rates and goal congruent decisions.The problem caused by this practiceincludes; there are situations where the market price is high compared to priceof the division this bring difficulties to decision making on division managersas they always aim to sell at high price. Under some circumstances transferprice at market value might provide incentives to use up the spare resources inorder to provide a marginal contribution to profit.
1.10 ACase Study on Evaluation of Financial and Non-financial Performance.This part uses Simba Cement Company toevaluate the financial performance from 2013 to 2016ProfitabilityRatiosSource: Simba Plc FinancialStatementsThe findings reveal that the company profit has beendecreasing from 2013 to 2016. The reason behind this is inefficiency of thecompany to use their assets to generate revenue as it keep on decreasing overtime. The NPM also shows the impact made the decrease in sales volume as thecompany had a net profit margin of 17.76 in 2013 as compared to 2.55 in 2016.According to chairperson statement of 2016, the market headwinds negativelyimpacted the company which reduces the sales by 20% in 2015-2016, the continuedincrease market competition and the lower infrastructure projects from thegovernment.
Simba cement therefore has taken measures to increase operationalefficiency and reduce cost. LiquidityRatiosSource: Simba Plc FinancialStatementsThe current ability to meet short term obligationhas decreased from 4.42 times in 2013 to 1.31 times in 2016. This shows thatthe company will be struggling in meeting immediate obligations as a ratio of1.3 times in three consecutive years not a good sign to lenders. The findingsshow that from 2014 the company was unable to meet their immediate obligationswithout selling their inventories.
The reason for this difficulty is thecompany actions to raise funds through borrowing and the negative balance intheir overdraft accounts Efficiency RatiosSource: Simba Plc FinancialStatementsThedecrease in company turnovers shows that the company had to extend their creditlimits to their debtors as findings shows that the company had a turnover of19.41 xs in 2013 as compared to 10.73 xs in 2016.
In other words the findingsreveal that the company took 18days to collects their receivable in 2013 ascompared to 34days in 2016 although the ratio maybe attributed by the decreasein credit sales during that period. The company was less efficient in utilizingthe fixed asset to increase sales as the last three years the ratios was below1. This inefficiency in sales also observed in inventory turnover as the lowratios implies that the company is weak in sales.
Leverage RatiosSource: Simba Plc FinancialStatementsThe leverage ratios show that as time goes on thecompany was increasing the amount of borrowing to finance their operations. Thecompany was less leverage in 2013 as compared to 2016 where it was high leverageas the debt to equity ratio was 1.37. in 2013 the company had no finance costwhich means that there was no borrowing during that year, but even when theyborrowed in 2014 they were able to pay interest cost by 287 times from theiroperating profit. But in 2015 and 2016 shows that the company was high leverageand the ability to pay interest was low as interest coverage ratio was 1.79 and1.4 in 2015 and 2016 respectively.
InvestmentsRatiosSource: Simba Plc FinancialStatementsThe findings show that the amount of dividend paidper one share decrease during the period under analysis as the company declareda dividend per share of 110 TZS in 2013 as compared to 80 in 2016. The reasonbehind this decrease is the decrease in profit for year, as resulted to thecompany declares a minimum amount of dividend as sometimes the company may optto retain dividend to finance other project as the company is in short offinance. The decision made on decrease in dividend actually affects the marketprice stock at the stock market. Reference: A.A Said, H. H.
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