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Questions and Answers
What is the primary purpose of performance measurement in financial management?
What type of measure would 'Increase in sales revenue' be classified as?
What is a benefit of performance measurement in a business?
What type of risk is 'credit risk' classified as?
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What is the purpose of establishing key financial performance indicators (KPIs)?
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Study Notes
Performance Measurement Overview
- Establishing key financial performance indicators (KPIs) is crucial for assessing a business's financial performance against industry standards.
- Performance measurement involves analyzing a business's ability to generate profits, utilize resources efficiently, and achieve set goals.
Importance of Performance Measurement
- Tracking progress toward business objectives highlights weaknesses and strengths, enabling targeted improvements.
- Identifies potential risks affecting financial health, including financial and credit risks.
- Facilitates better allocation of resources within a business.
Methods of Measuring Performance
- Output Measure: Quantifies the total number of products (e.g., shoes) produced and sold.
- Process Measure: Analyzes production costs to determine overall efficiency in manufacturing.
- Outcome Measure: Evaluates financial success through increases in sales revenue.
- Quality Measure: Assesses customer complaints related to product quality to maintain standards.
- Financial Measure: Calculates the total revenue generated from sales to understand profitability.
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Description
Test your knowledge of financial management concepts, including performance measurement, financial risk, and key performance indicators.
