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Performance measures and budgetary control

Key metrics in the budget

An organisation should have certain targets for achievement. Targets
can be expressed in terms of key metrics. The term ‘metric’ is now in
common use within the context of measurement of performance. It is a
basis for analysing performance (both budgeted and actual).

A budget should not be approved by senior management unless
budgeted performance is satisfactory, as measured by the key metrics.
Actual performance should then be assessed in comparison with the
targets.

Profitability:

ROCE = Profit/Capital Employed

C

Asset turnover =
Turnover/Capital Employed
A B
Profit Margin =
Profit/Turnover Employed

There is a direct relationship between the three figures.

All figures are used twice, meaning A × B = C

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