Table of Contents

Chapter 1 - Overview of Measurements. 1

What to Measure. 1

Mandatory Measurements. 2

Breaking with Tradition. 3

Measurement Usage Levels. 3

Measurement Timing. 4

Measurement Consistency. 4

Measurements and the Soft Close. 5

Measurement Clutter. 5

Limitations of Ratio Analysis. 6

Chapter 2 - Performance Measurements. 10

Overview of Performance Measurements. 10

Sales Returns and Allowances to Sales. 10

Contribution Margin Ratio. 11

Gross Profit Ratio. 12

Operating Income Ratio. 13

Net Profit Ratio. 14

Deflated Profit Growth. 14

Effective Tax Rate. 16

Core Earnings Ratio. 16

Quality of Earnings Ratio. 17

Operating Ratio. 18

Operating Leverage. 19

Breakeven Point 20

Margin of Safety. 21

Discretionary Cost Ratio. 22

Chapter 3 - Liquidity Measurements. 25

Overview of Liquidity Measurements. 25

Cash Conversion Cycle. 26

Days Sales in Accounts Receivable. 26

Days Sales in Inventory. 27

Days Payables Outstanding. 28

Liquidity Index. 29

Current Ratio. 29

Inventory to Current Assets Ratio. 30

Quick Ratio. 31

Cash Ratio. 32

Defensive Interval Ratio. 33

Net Working Capital Ratio. 34

Working Capital Productivity. 35

Working Capital Roll Forward. 36

Illiquid Asset Conversion Ratio. 37

Solvency Ratio. 37

Altman Z Score. 39

Chapter 4 - Cash Flow Measurements. 41

Overview of Cash Flow Measurements. 41

Free Cash Flow.. 41

Cash Flow Returns. 42

Cash Flow per Share. 42

Cash Flow Return on Sales. 43

Cash Flow Return on Assets. 44

Cash Flow from Operations Ratio. 45

Cash Reinvestment Measurements. 45

Cash Reinvestment Ratio. 46

Funds-Flow Adequacy Ratio. 46

Chapter 5 - Return on Investment 49

Return on Equity. 49

Economic Value Added. 51

Book Value Analysis. 54

Net Book Value. 55

Tangible Book Value. 56

Book Value per Share. 56

Return on Assets. 57

Return on Assets. 58

Return on Operating Assets. 59

Earnings per Share. 60

Dividend Performance. 62

Dividend Payout Ratio. 62

Dividend Yield Ratio. 63

Chapter 6 - Share Performance Measurements. 66

Overview of Share Performance Measurements. 66

Price/Earnings Ratio. 67

Capitalization Rate. 68

Total Shareholder Return. 68

Market Value Added. 69

Market to Book Ratio. 70

Insider Buy/Sell Ratio. 71

Options and Warrants to Common Stock Ratio. 72

Short Interest Ratio. 74

Institutional Holdings Ratio. 74

Chapter 7 - Growth Measurements. 78

Overview of Growth Measurements. 78

Sales Growth. 78

Deflated Sales Growth. 79

Sales Growth Consistency. 79

Core Sales Growth. 80

Customer Growth. 81

Expense Growth. 82

Profit Growth. 83

Profit Growth. 83

Profit Growth Consistency. 83

Affordable Growth Rate. 84

Chapter 8 - Constraint and Throughput Measurements. 87

Overview of Constraint Measurements. 87

Bottleneck Utilization. 87

Bottleneck Effectiveness. 88

Bottleneck Schedule Fulfillment 89

Buffer Penetration. 90

Bottleneck Maintenance to Operating Ratio. 91

Bottleneck Rework Processing. 92

Post-Bottleneck Scrap. 93

Manufacturing Effectiveness. 94

Manufacturing Productivity. 94

Manufacturing Effectiveness. 95

Manufacturing Throughput Time. 96

Delayed Throughput 96

Chapter 9 - Cash Management Measurements. 100

Overview of Cash Management Measurements. 100

Auto Cash Application Rate. 100

Suspense to Receivables Ratio. 101

Actual Cash Position versus Forecast 102

Average End of Day Available Balance. 103

Earnings on Invested Funds. 103

Unhedged Gains and Losses. 104

Chapter 10 - Credit and Collection Measurements. 106

Overview of Credit and Collection Measurements. 106

Days Sales Outstanding. 107

Best Possible DSO.. 108

Collection Effectiveness Index. 109

Measurements Based on Time Buckets. 110

Days Delinquent Sales Outstanding. 111

Average Days to Pay per Collector. 111

Collection Dispute Cycle Time. 111

Deduction Turnover. 112

Average Time to First Contact 112

Bad Debt Percentage. 113

Collection Performance Report 113

Average Time to Establish Credit 114

General Management Measurements. 114

Chapter 11 - Customer Service Measurements. 117

Overview of Customer Service Measurements. 117

On-Time Delivery Percentage. 118

Order Cycle Time. 119

Order Fill Rate. 119

Orders Damaged in Transit 120

Customer Turnover. 122

First Contact Resolution. 122

Escalation Rate. 124

Caller Abandonment Rate. 124

Incident Volume. 125

Inbound Caller Retention. 125

Customer Opinions. 126

Customer Satisfaction Ratio. 126

Net Promoter Score. 127

Chapter 12 - Facility Measurements. 131

Overview of Facility Measurements. 131

Cost per Square Foot 131

Occupancy Cost Ratio. 132

Square Feet per Person. 133

Percent of Storage in High-Cost Locations. 134

Floor Space Utilization. 134

Cubic Volume Utilization. 135

Percentage of Storage Bins Utilized. 136

Honeycombing Percentage. 137

Chapter 13 - Financing Measurements. 140

Overview of Financing Measurements. 140

Debt to Equity Ratio. 140

Supplier Financing of Assets. 141

Ability to Pay Measurements. 142

Interest Coverage Ratio. 142

Debt Service Coverage Ratio. 143

Fixed Charge Coverage Ratio. 143

Cash Coverage Ratio. 144

Average Cost of Debt 145

Borrowing Base Usage. 146

Chapter 14 - Fixed Asset Measurements. 149

Overview of Fixed Asset Measurements. 149

Sales to Fixed Assets Ratio. 149

Accumulated Depreciation to Fixed Assets Ratio. 150

Cash Flow to Fixed Asset Requirements Ratio. 151

Repairs and Maintenance Expense to Fixed Assets Ratio. 152

Chapter 15 - Human Resources Measurements. 155

Overview of Human Resources Measurements. 155

Position Fulfillment Speed. 155

Unfilled Requisitions Ratio. 157

Recruiter Effectiveness Ratio. 158

Intern Conversion Ratio. 159

Cost per Hire. 159

Employee Replacement Cost 160

Accession Rate. 162

Employee Turnover. 162

Annualized Compensation per Employee. 163

Net Benefits Cost per Employee. 164

Sales per Person. 165

Profit per Person. 166

Administrative Staff Ratio. 167

Ergonomic Injury Rate. 168

Outsourcing Cost Effectiveness. 169

General Management Measurements. 170

Chapter 16 - Inventory Measurements. 172

Overview of Inventory Measurements. 172

Average Inventory Calculation. 172

Inventory Turnover Measurements. 174

Inventory Turnover Ratio. 174

Raw Materials Turnover 174

Work-in-Process Turnover 175

Finished Goods Turnover 176

Inventory Accuracy Percentage. 177

Excess Inventory Measurements. 178

Obsolete Inventory Percentage. 178

Percent of Inventory Greater than XX Days. 179

Returnable Inventory Valuation. 180

Opportunity Cost of Excess Inventory. 180

Chapter 17 - Payroll Measurements. 184

Overview of Payroll Measurements. 184

Payroll Transaction Error Rate. 184

Form W-2c to Form W-2 Ratio. 185

Proportion of Manual Checks. 186

Payroll Entries to Headcount Ratio. 186

Outsourced Payroll Cost per Employee. 187

Chapter 18 - Pricing Measurements. 190

Overview of Pricing Measurements. 190

Price Elasticity of Demand. 190

Cross Price Elasticity of Demand. 192

Throughput per Minute. 192

Proportion of Discounted Prices. 193

Selling Price Variance. 194

Sales Volume Variance. 195

Chapter 19 - Production Measurements. 198

Overview of Production Measurements. 198

Department-Level Performance. 198

Order Cycle Time. 198

Manufacturing Efficiency. 199

Productivity Cause and Effect Ratio. 200

Degree of Unbalance. 201

Operational Takt Time. 202

Equipment Measurements. 203

Equipment Effectiveness. 203

Setup Time. 204

Unscheduled Downtime Percentage. 205

Maintenance and Repair Ratio. 205

Average Run Time. 206

Yield Measurements. 207

First-Pass Yield. 207

Material Yield Variance. 208

Expense Proportions. 209

Indirect Labor to Direct Labor Ratio. 209

Overhead to Direct Cost of Goods Ratio. 210

General Management Measurements. 210

Chapter 20 - Product Design Measurements. 213

Overview of Product Design Measurements. 213

Product Development 213

Number of Design Platforms. 213

Reused Components Percentage. 214

Design Cycle Time. 215

Bill of Material Accuracy. 216

Financial Outcomes. 216

Percentage of Target Cost Attained. 217

Percentage of New-Product Sales. 218

Return on Research and Development 218

Warranty Claims Percentage. 219

Chapter 21 - Purchasing Measurements. 222

Overview of Purchasing Measurements. 222

Proportion of Purchase Orders above Threshold. 223

Procurement Card Usage Percentage. 224

Proportion of Spend Managed. 224

Proportion of Spend with Preferred Suppliers. 225

Proportion of Certified Suppliers. 226

Supplier Performance Measurements. 227

Supplier Fulfillment Rate. 227

Supplier Defect Rate. 228

Supplier Billed Price Variance. 229

Economic Order Quantity. 230

Proportion of Targeted Inventory Dispositioned. 230

General Management Measurements. 231

Chapter 22 - Payables Measurements. 233

Overview of Payables Measurements. 233

Transaction Error Rate. 233

Full-Time Equivalent Measurements. 234

FTEs per $1 Million of Revenue. 234

Staff Cost per FTE.. 235

Line Items per FTE.. 235

Paperless Measurements. 235

Percent of Paperless Invoices. 235

Percent of Paperless Payments. 235

Additional Payables Measurements. 236

Chapter 23 - Sales and Marketing Measurements. 239

Overview of Sales and Marketing Measurements. 239

Sales Productivity. 239

Incremental Salesperson Effectiveness. 240

Sales Effectiveness. 241

Sales and Marketing as Percentage of Sales. 242

Existing Customer Solicitation Ratio. 243

Order Placement Rate. 244

Sales per Customer. 245

Quote to Close Ratio. 246

Sales Backlog Ratio. 246

Throughput Measurements. 247

Throughput Quoted. 247

Ratio of Throughput Awarded to Quoted. 248

Ratio of Throughput Booked to Billed. 249

Marketing Measurements. 250

Advertising Value Equivalency. 250

Sales to Unique Visitors Ratio. 251

Direct Mail Effectiveness. 252

Market Share. 252

Customer Lifetime Value. 253

General Management Measurements. 254

Answers to Chapter Questions. 257

Glossary. 285

Index. 289

 

Final Examination..............................................................................................................................................294