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How does accounting information assist management in measuring efficiency and effectiveness? |
How does accounting information assist management in measuring efficiency and effectiveness? Accounting info help management measure the following__- EBITDA-(Earnings before interest depreciation and amortization.)-As a % of revenue is always a good measure of effectiveness.i.e. How much money do we make for every $ of sales. Another is-ROFE.(-Return on funds employed).i.e.How much earnings(profit) do we make out of all the capital we use in this business?This measures hoe efficiently we are using the funds at our disposal> These are just 2 measures but as the CEO of a listed business they are 2 of my favourate accounting ratios. Source(s): 20 years experiance. Accounting is about numbers. These numbers are a representation of the outcome of strategic management decisions. Accounting information is used to analyse business profitability and to diagnose problems that may arise from poor decision making. It doesn't. Efficiency and effectiveness are totally subjective subjects and require the "reviewer" to interpret actuality vs goals. Never let accountants drive your business practices. They are accountants because they do not have the ability to see outside the lines. It's scary out there and they don't take fear well. To a great extent, it doesn't. About 2000 most major firms started using a "balanced scorecard" reporting format, because of the weaknesses in accounting reports. On a balanced scorecard, non-financial information is complied. Customer satisfaction, quality issues, employee satisfaction, restroom cleaniness. Anything and everything goes into balanced reporting. BS reporting occurs at levels where a financial report may not be possible, such as a call center. And, it helps in companies with long lead times. For example, a car sold in the US in Sept. 2007 may have been produced in Korea in Sept. 2006. By the time the car is manufactured, stored, transported to the dock, placed on a ship, transported, stored, moved to the dealer, etc., etc. a problem found by the customer and word of mouth spreads that the car is a bad product, several years can go by. Measuring bathroom cleaniness at the manufacturing plant, employee satisfaction with cafeteria food, etc. is a measurement that can reflect customer satisfaction years before the product is purchased or profits from bad sales occur. Balanced scorecard reporting is the true measure of managerial effectiveness. As a consultant, I've visited a number of companies where the president hasn't read the monthly report in nine months. Instead, he was relying on customer feedback to know if the company was doing a good job. Check with Google on "balanced scorecard reporting", and also at www.fastcompany.com |
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