Some companies present financial and nonfinancial performance measures for various organization units in a single report called the balanced scorecard.

The balanced scorecard in most organizations is broken down into the following categories: commercial perspective,suppli er perspective,externalbusi ness-process perspecti ve, and productivity perspecti ve

The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.

A major weakness of comparing two companies using only operating incomes as the basis of comparison is that it ignores the differences in the size of the investment and therefore any concept of yield or return on investment.

Reducing the investment base to improve ROI involves decreasing idle cash,paying down debt, determining proper inventory levels,and spending carefull y on long-term asset

Return on sales can provide how effectively costs are managed and is part of the DuPont method of profitability analysis.

Return on investment can be calculated by multiplying return on assets by investment turnover

All other things held constant,increase i n assets such as receivables or decrease in operating income results in an increase in return on investment

The DuPont method recognizes the two basic ingredients in profit making: increasing the income per dollar of revenues and using assets to generate more revenues

To evaluate overall performance,return on investment and residual income measures are more appropriate than return on sales.

Required rate of return multiplied by the investment is the weighted average cost of the investment

The objective of maximizing return on investment may induce managers of highly profitable divisions to reject proj ects that from the viewpoint of the overall organization should be accepted.

Return on investment, Residual income,or Economic value added measures are more appropriate than return on sales because they consider only the investment to measure the performance

Economic value added, unlike residual income,charges managers for the costs of their investments in long-term assets and working capital .

Companies that adopt the EVA concept define investment as total assets employed minus current liabil ities

In an EVA calculation, the corporate charge for a division's investment is based on a weighted average of the after-tax interest rate on the firm's debt and the cost of the firm's equity.

In an EVA calculation, the measure of the invested capital for a division would be that di vision' minus that division' s long-term liabil ities

In an EVA calculation, the appropriate measure of a division' s profit would be that division' operating income

The proponents of using net book value as an investment base maintain that it is less confusing because it is consistent with the amount of total assets shown in the conventional balance sheet

Current cost return on investment is a better measure of the current economic returns from a investment than historical cost return on investment.

The net present value of all cash flows over the life of an investment equals the net present value of the operating incomes.

Total assets employed includes all assets,regardless of their intended purpose.

Using net book value as an investment base will result in a lower ROI than using gross book value as an investment base

Historical-cost-based accounting measures are usually inadequate for evaluating economic returns on new investments and, in some cases, create disincentives for expansion

Inflation and fluctuations in foreign-currency exchange rates affect performance measurement.

Higher inflation will lead to higher prices for goods or services,which will increase a company' s operating income and lead to a higher ROI

To convert the operating income for an overseas branch into US dollars,the historical rate of exchange is used for its conversion into US dollars.

To calculate the value of fixed assets for an overseas branch,the historicalrate of exchange is used for its conversion

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks

There should be strict congruence between the performance evaluation of a subunit and the performance evaluation of that subunit's manager

A manager's job entails gathering information,interpreting that information and making judgments on that information and thus is less susceptible to moral hazards than jobs that require repetitive tasks and less subjective decision making.

The more owners have access to sensitive performance measures, the more they can rely on incentive compensation for their managers

The credit rating agencies require detailed disclosures of the compensation arrangements of top-level executives.

The salary component of compensation dominates when performance measures that are sensitive to managers' actions are not available.

An additional criticism of team-based compensation is that there can be problems managing team members who are not productive contributors to a team's success but who, nevertheless, share in the team's rewards

Stock options give executive the right to buy company stock at a specified price, called the exercise price,within a specified period.

"Cooking the books" means reporting of understated assets and overstated liabilities.

Intrinsic motivation comes from being given greater responsibility,doing interesting and creative work, and having pride in doing that work.

An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and oppurtunities.

Some companies, make environmental performance a line item on every employee's salary appraisal report.

Interactive control systems are informal information systems managers use to focus the company' attention and learning on key strategic issues.

Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.