Business Financial Measures

We will demonstrate in this section that improvement in some selected supply chain metrics also results in improvements in some important financial metrics of the firm, which should, of course, be closely correlated with its overall business performance. To illustrate this relationship, let us consider several interrelated inventory measures—inventory turns, days of inventory, and inventory capital— and how they affect some important financial measures—return on assets, working capital, and cash-to-cash cycle. 

A good reference line of key performance indicators of a supply chain is the Balanced Scorecard by Kaplan and Norton (1996). Kaplan and Norton argue that a valuation of intangible assets and company capabilities would be especially helpful since, for information age companies, these assets are more critical to success than traditional physical and tangible assets . The Balanced Scorecard retains traditional financial measures, customer services and resource utilization (internal business process) and includes additional measures for learning (people) and growth (innovation). This approach complements measures of past performance with drivers for future development. 

Financial measures that are rooted in the past are insufficient for taking logistics decisions in today s fast-moving environment. A balanced measurement portfolio is called for, one that takes into account the needs of different stakeholders in a business. A balanced measurement portfolio is extended into the supply chain by means of the supply chain operations reference model (SCOR). 

The Duns Financial Records Plus (DFR) database provides a balance sheet, income statement, and fourteen of the more widely used business ratios for measuring solvency, efficiency, and profitability. DFR also provides industiy norms and percentages that can be used to compare a toller s financial position to that of their... 

In this formula, P is present worth or present value, F is future value, i is the interest or discount rate, and n is the number of periods. Economically, there is an additional factor at work in present value, and that factor is pure time preference, or impatience. However, this issue is generally ignored in business accounting, because the firm has no such emotions, and opportunities can be measured in terms of financial return. 

Second, when the financial sponsor exits the business, the joint financial success is equally measurable for the private equity investors and the management team sharing the equity participation. This is important, as it demonstrates fairness to both those who have worked hard on the financial sponsors side and those who have worked hard as responsible managers of LBOs. 

Since an inherent goal of any business is to be profitable, we can view profitability ratios as measures of overall success in the daily operations of a business. More specifically, profitability ratios provide a method to measure the overall financial success of a company. Examining profitability ratios allows managers to assess the company s level of success in generating profits. The most commonly used profitability ratios are the gross profit margin and the net profit margin. 

A pharmacy, like any other business entity, needs to protect itself, its employees, and its customers from physical and financial harm. No matter how careful a pharmacy is about preventing risks, it is practically impossible to eliminate accidents, such as when a customer or employee slips on the pharmacy s floor. At the same time, insuring for these risks does not eliminate the need for pharmacies to take effective risk prevention measures. Indeed, insurers commonly require that pharmacies have risk prevention measures in place to keep insurance policies in good standing for these risks or to reduce premiums. For instance, insurance for fire damage generally requires a sprinkler system or smoke detectors or alarms. 

The big disadvantage of the measures of performance in the list above is that, for the most part, they are only of internal relevance to R D. The customers of R D in the business function rarely show any interest in most of the professional elements on this list, for example the numbers of papers published or lectures given. To get continued and increasing support from the business team, there is a need to use those indicators that demonstrate the outcome of the group s efforts, in terms of financial benefits to the organisation. 

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