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Managerial Performance Measurement

Managerial Performance Measurement

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To compute any quantitative performance measurement of an operating unit, it is necessary to arrive at reasonable income and investment measures for the unit. There are a few shortcuts in undertaking an intelligent analysis of financial statements. Knowledge of accounting theory and practice is desirable to ensure a sound interpretation.
To compute any quantitative performance measurement of an operating unit, it is necessary to arrive at reasonable income and investment measures for the unit. There are a few shortcuts in undertaking an intelligent analysis of financial statements. Knowledge of accounting theory and practice is desirable to ensure a sound interpretation.

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Published by: ClassOf1.com on Jun 18, 2013
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 Accounting
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Sub: Accounting Topic:
 
Managerial Accounting
*
Managerial Performance Measurement
 
To compute any quantitative
performance measurement
of an operating unit, it is necessary toarrive at reasonable income and investment measures for the unit. There are a few shortcuts inundertaking an intelligent analysis of financial statements. Knowledge of accounting theory andpractice is desirable to ensure a sound interpretation. Equally important is the fact that the analysisshould be detailed and varied. There are various tools of analysis that can be helpful when usedintelligently. But no tool of analysis is better than the information on which it is based. This is not anarea in which one will find exact answers; often, the analysis will raise additional questions. Also, itshould be noted that the financial analysis based on published accounting data tends to be a short-run analysis. The long-run well-being of the firm is related to future conditions, competitiveenvironment, technology, and other items that the accountant does not measure (such as the caliberof the younger executives of the firm). The financial analysis is a historical approach based on pastevents, not forecasts of the future. Accountants follow well-defined rules of the game (which we
have called “Generally Accepted Accounting Principles”) in pre
paring published financial statements.These rules and the contexts in which they are set must first be understood if accounting reports areto be properly used. One of the most important and most difficult tasks of an administrator is tomeasure the performance of subordinates. Sometimes a measure is useful for one purpose, but notfor another. The fact that a golf drive went 250 yards is useful in judging the force with which the ballwas hit, but knowledge of the total distance covered is not useful in judging whether the drive wasgood or bad. We need information relating to the location and distance of the hole before we canmake that type of decision.How do we measure the performance of a member of management? The
first step
is to establishobjectives. The
second step
is to see how well these objectives are met. We shall assume that aprime objective of the firm is to maximize profits; from
the accountant’s point of view, this is an
important consideration. Other objectives such as maintaining continuity of existence will not be
 
 
Sub: Accounting Topic:
 
Managerial Accounting
*
considered. The extent of success in attaining objectives may be assessed quantitatively orqualitatively. The qualitative criterion will include things such as relations with superiors andsubordinates, training of subordinates, professional attainments, civic activities, and ability to getthings done. The qualitative factors are relevant in judging performance, but are more the provinceof the industrial psychologist than of the accountant or the financial manager.
 

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