In a market economy, management organizational performance occupies a central position in the business life of business entities. It is important that the financial condition is primarily characterized by the availability of cash and material resources necessary for normal functioning, as well as their effective use and appropriate placement. How to achieve the best possible results? Which exist key performance indicators of the organization? What are they talking about? You can find answers to these and other equally interesting questions in the process of familiarization with the materials of this article.
Economic effect and economic efficiency
In order to business activity was evaluated correctly, it is necessary to distinguish between the concepts of "economic effect" and "economic efficiency". These categories in a market economy occupy a special place. Thus, under the economic effect should be understood a certain result that can be beneficial and expressed in the evaluation of value. As a rule, the role of such a result is the saving of costs, resources or profit. It is worth adding that the economic effect is an absolute value, which in the first place depends on cost savings and production scale.
The economic efficiency of the organization is nothing more than a ratio, the components of which are the results of economic activity and costs (both living and material labor), resources. One way or another, it depends on the economic effect. In addition, costs and resources have a major impact on economic efficiency, which contribute to the appropriateness of the effect. So, under economic efficiency should be considered the relative value that can be obtained through a comparison of the effect and costs, resources.
What is the essence of analysis?
Usually, analysis of the financial performance of the organization involves two indicators, because in a separate respect, the values of efficiency and effect do not provide a comprehensive and complete assessment. For example, one or another structure observes a situation when it is appropriate to achieve a significant economic effect, expressed in profit, with a rather low indicator of economic efficiency. The opposite situation may also be realized: production characteristics require a high degree of efficiency, and the magnitude of the economic effect leaves much to be desired.
Scorecard
Efficiency mark activities of the structure cannot be carried out taking into account only one indicator. The variety of signs and properties of varieties of production, economic and commercial activities of the company one way or another causes a large set of indicators. Moreover, the main problem of their application is that not a single indicator is capable of playing the role of a universal one, according to which it would be possible to unequivocally identify successes or failures in terms of business. Therefore, in practice, a system is always used in which various organization performance indicators. It is important to note that all its elements are closely related to each other and are able to reflect different aspects of the structure.
It is necessary to clarify that an indicator should be understood as a sign that characterizes a certain side of the action, phenomenon, their qualitative and quantitative description or level of performance of a particular task. The joint efforts of Russian science and practice created a system of financial, economic and statistical indicators, as well as developed methods for their accounting and calculation. However, their use was supposed in accordance with the centrally planned management system. So, in the process of transition to market-based relations, this system of indicators has undergone and is still undergoing specific changes.
Example
For example, if the assessment of efficiency under the planned management system was carried out mainly taking into account such indicators as the volume of the produced product, the implementation of the plan, the volume of the gross product, then with the market approach the following signs become paramount: profit, volume of the sold product, profitability, and many indicators of an optimization nature. The production focus on satisfying consumer demand at a rapid pace has given strength to the value of evaluating various options in terms of meeting demand.
Classification of indicators
Today, in accordance with market requirements, organization performance indicators can be classified into:
- Evaluation, which characterize the possible or already achieved level of results, as well as the development of certain activities.
- Costs that reflect the amount of expenses associated with the implementation of various activities.
Similar division of signs to which business activity has a direct relationship, very conditional. In the first place, it consists of the purpose of the analysis. For example, an indicator that reflects production costs may be of an evaluative nature (then it reflects the degree of labor costs) or be defined as a cost-based indicator that allows you to identify the corresponding category in a quantitative sense in the provision of services. The latter situation, as a rule, takes place in the planning process.
By the way, the performance indicators of an organization depend on its own significance, as well as on the nature of the activity. For example, the indicator reflecting profit is not of interest to everyone to the same extent, despite the fact that it is usually referred to as extremely important. So, for the lessor (buildings, land or equipment) of greater interest is the movement of liquidity in the structure; For the shareholder, not only the size of the dividends is important, but also the stock price, which depends on the volume of sales and growth rates.
Absolute, relative and average indicators
Depending on the purpose of the analysis, organization performance criteria can be expressed in the form of average, absolute or relative values. In addition, today it is customary to highlight incremental and structural indicators. It will be advisable to consider now the presented categories separately.
Absolute organization performance indicators are in kind and value. It is logical that in the conditions of a market economy, cost criteria play a primary role. These circumstances are determined by the nature of commodity-money relations. Absolute indicators reflect the degree of structure development achieved over a specific time period. These include sales (turnover), private and gross profit, private and gross revenue, dividends, production costs and product sales, production assets (both fixed and current), as well as debt, authorized capital, and so on.
Relative indicators, reflecting the results and effectiveness of the organization, are interpreted as relations of absolute indicators that characterize the share of one attribute in another, or as relations of indicators of a heterogeneous nature.It is important to note that the corresponding assessment procedure consists mainly in comparing the values for the reporting period with the base values (these include planned, average for the previous year, reporting for previous periods, industry average, as well as indicators of competing enterprises and so on). As vivid examples of relative signs can be called productivity, profit per unit of cost, authorized capital or fixed asset value, capital ratio and others.
Structural and incremental indicators
Ensuring the effectiveness of the organization also involves taking into account structural and incremental indicators. Under the first should be understood signs of capital, expenditure and income. They reflect the proportion of individual elements in the productive group. Incremental indicators characterize your own change for a specific time period. They can be measured both in relative and absolute terms. Incremental changes include changes in the authorized capital or profit for the year.
As it turned out, the efficiency of the organization determined by heterogeneous and diverse indicators, and in the same situations, some of them improve, and some - vice versa. For example, an increase in profits provided that the product is sold on credit (with a delay in payments) in one way or another leads to a proportional decrease in cash. Market conditions imply the presence of the following indicators of a controlled nature: sales, revenue from product sales, assets, net profit, number of shareholders, export share in relation to turnover, as well as the amount of dividends paid and so on.
System of specific indicators
In order to determine the effectiveness of the production activities of the organization, it is advisable to use the system of the following indicators:
- Production. It refers to labor productivity and characterizes the amount of product released per unit of work time or per average employee per year, quarter or month. This indicator is calculated as the ratio of the manufactured product in quantitative terms to the time cost of its production.
- Labor input. It refers to labor productivity and serves as the value of the inverse generation. This indicator characterizes labor costs for the production of a unit of product and is calculated as their ratio to the volume of production.
- Return on assets. Refers to the indicators of the use of fixed assets and reflects the output in quantitative terms per one ruble of fixed assets for industrial purposes. This indicator is calculated as the ratio of the product sold over the year to the value of fixed assets of a production nature in average annual terms.
- Capital intensity. This characteristic refers to the performance of fixed assets and is the return on capital productivity. It shows the value of fixed assets for industrial purposes per one ruble of the sold product. The indicator is calculated as the ratio of the cost of fixed assets of an industrial orientation in average annual terms to the volume of product sold per year.
- Labor capital ratio. It relates to indicators of the use of fixed assets and characterizes the equipment of employees of the structure with fixed assets for production purposes. This indicator is calculated as the ratio of the cost of fixed assets of a production nature in average annual terms to the average number of employees.
- The intensity factor of the use of equipment. It is an indicator of the use of fixed assets and reflects the effectiveness of the use of relevant equipment at the enterprise.The indicator is calculated as the ratio of the volume of the product released upon the fact to the predetermined production capacity of the mechanisms (throughput).
Profitability indicators
Profitability indicators include the following items:
- Product Profitability. It reflects the cost-effectiveness of production and further sale of products. The indicator is calculated as the ratio of profit from sales to the sum of relevant costs.
- The overall profitability of production. This characteristic reflects the profitability (or unprofitability) of the production activity of the structure for a specific time period (year, quarter, month). The indicator is calculated as the ratio of profit on the balance sheet to the value of fixed assets for industrial purposes in average annual terms and working capital of a normalized nature.
- Return on sales. It reflects the profit of the structure from one ruble of the sold product. The indicator is calculated as the ratio of profit to the average value of net assets.
- Profitability of property complexes of the structure. It reflects the profit received from one ruble invested in assets. The indicator is calculated as the ratio of net profit to the average value of net assets.
- Return on equity. Reflects the effectiveness of the use of funds that belong to the owners of the structure. This criterion is key in the process of evaluating stock quotes on the stock exchange. The indicator is calculated as the ratio of net profit to the value of equity capital averaged over a certain period.
The economic meaning of analysis
A comprehensive and systematic analysis in terms of the effectiveness of the structure in one way or another allows you to:
- Professionally, efficiently and quickly evaluate the efficiency and effectiveness of economic activities of both the company as a whole and its structural units, which is very important for successful practice.
- Timely and accurately determine and take into account factors that, to one degree or another, affect the profit earned in accordance with the specific varieties of the services provided, as well as the goods produced.
- To identify the costs of the production process, called today the costs of production, as well as trends. It is important to add that it is urgently needed to form the pricing policy of the structure.
- Develop optimal methods for solving company problems and making a profit both in the short and long term.