A performance measurement system enables an enterprise to plan, measure, and control its performance according to a pre-defined strategy.

In short, it enables a business to achieve desired results and to create shareholder value. The major performance measurement systems in use today are profiled below include: The balanced scorecard Activity-based costing/ Activity based management Economic value added(EVA) Quality management Customer value analysis Performance prism Ratio Result and analysis Market Capitalization Methods Return on Assets methods Horizontal Analysis and Vertical analysis

The balanced scorecard The balanced scorecard is the most widely applied performance management system today. The bsc was originally developed as a performance measurement system in 1992 by Dr. Robert Kaplan and Dr. David Norton at the Harvard business school. Unlike earlier performance measurement system, the bsc measures performance across a number of different perspectives- a financial perspective, and an innovation and learning perspective. Through the use of the various perspectives, the BSC captures both leading and lagging performance measures, thereby providing a more balanced view of company performance. Leading indicators include measures, such as customer satisfaction, new product development, on time delivery, employee competency development. Traditional lagging indicators include financial measures, such as revenue growth and profitability. Te BSC performance management systems have been widely adopted globally, in part, because this approach enables organizations to align all levels of staff around a single strategy so that it can be executed more successfully. Balanced scorecard methodology is an analysis technique designed to translate an organization's mission statement and overall business strategy into specific, quantifiable goals and to monitor the organization's performance in terms of achieving these goals. Developed by Robert Kaplan and David Norton in 1992, the balanced scorecard methodology is a comprehensive approach that analyzes an organization's overall performance in four ways, based on the idea that assessing performance through financial returns only provides information about how well the organization did prior to the assessment, so that future performance can be predicted and proper actions taken to create the desired future.

The methodology examines performance in four areas: financial analysis, the most traditionally used performance indicator, includes assessments of measures such as operating costs and return on investment; customer analysis looks at customer satisfaction and retention; internal analysis looks at production and innovation, measuring performance in terms of maximizing profit from current products and following indicators for future productivity; and finally, learning and growth analysis explores the effectiveness of management in terms of measures of employee satisfaction and retention and information system performance. As a structure, balanced scorecard methodology breaks broad goals down successively into vision, strategies, tactical activities, and metrics. As an example of how the methodology might work, an organization might include in its mission statement a goal of maintaining employee satisfaction. This would be the organization's vision. Strategies for achieving that vision might include approaches such as increasing employee-management communication. Tactical activities undertaken to implement the strategy could include, for example, regularly scheduled meetings with employees. Finally, metrics could include quantifications of employee suggestions or employee surveys.

Organizations have adapted the BSC to their particular external and internal circumstances. Both commercial and not for profit organization have successfully used the BSC framework. As a result Kaplan and Norton of continued research and innovations over the last 15 years, THE BSC has gone through an evolutionary process of improvement management (1996-2000), to becoming a globally recognized best practice for strategy management (2001- to present) in fact, the benefits a firm can obtain from properly implementing the BSC include: Translating strategy into more easily understood operational metrics and goals;

Aligning organizations around a single, coherent strategy; Making strategy everyones everyday job, form CEO to the entry-level employee; Making strategic improvement a continual process; Mobilizing change through strong and effective leadership

There are some advantages and disadvantages in using a BSC system. The whole reason to obtain a BSC system is so an organization can measure more than just the financial performance. Advantages Taking these four different perspectives as a whole ensures that senior management is taking a balanced view about the performance of the organization The short, medium and long-term views are managed in an ongoing cohesive manner Top level strategy and middle management level actions are clearly connected and appropriately focused The organization performance reporting system is much more likely to be focusing on the things necessary to stay competitive in the long term and realize value for its stakeholders.

Disadvantages The balanced scorecard approach is not a quick fix; it takes considerable though to develop an appropriate scorecard While communication can commence within a short time, the complete implementation should be staged

Economic value added Economic value added is a measure of by how much a companys return exceed those required by supplier of capital. It therefore tells one how much wealth the company has create for providers of capital. The exact definition used varies, in essence it is: EVA=P-WACC x (D+S) The aim of EVA is to provide management with a measure of their success in increasing shareholders wealth. It is a better measure than profit of how much the company had made for shareholders. It is not of much direct use for valuation, but that is not what it is intended for. However, even in its intended role, the lack of adjustment for taking on debt means that it has an in-built bias in favour of high gearing. EVA is superior to other measures of financial performance because of the following:

EVA links the use of capital with unit financial performance and provides a business focus for unit management EVA provides an incentives to employees to minimize expense and capital employed rather than to maximize the amount of budget resource available EVA empower employees who are accountable for producing maximum result and minimizing resource used

A discussion on Economic Value Added has to begin with the origin of the concept. EVA is based on the work of Professors Franco Modigliani and Merton H. Miller. In October, 1961, these two finance professors published Dividend Policy, Growth and the Valuation of Shares, in the Journal of Business. The ideas of free cash flow and the evaluation of business on a cash basis were developed in this article. These ideas were extended into the concept of EVA by Bennett Stewart and Joel Stern of Stern, Stewart & Company. Economic Value Added is defined as net operating profit after taxes and after the cost of capital. (Tully, 1993) Capital includes cash, inventory, and receivables (working capital), plus equipment, computers and real estate. The cost of capital is the rate of return required by the shareholders and lenders to finance the operations of the business. When revenue exceeds the cost of doing business and the cost of capital, the firm creates wealth for the shareholders. Advantages of EVA The advantage of EVA is that it is a single number that is applied across the full spectrum of postal service operation. It makes financial performance more relevant to all postal employees. EVA emphasizes managing the whole business and creating value. Our traditional focus on measuring annual performance against budget has been transformed to recognize and include a measure of the returns required on investment and operating performance. Management attention is directed beyond short-term profitability to long term return on total assets and investment. EVA directs our efforts toward growing our business and producing long term value through additional investment. It cause us to challenge existing deployment of capital and turn our toward continuous profitability improvement. When linked to an incentive award system, EVA provides a measure to evaluate success and catalyst for continued performance improvement. It is a management tool to help all postal employees to do their jobs better and, thus, the business runs more effectively. It is used to set goals, measure progress, and to correct our course when required. Disadvantages - Measurement of Efficiency The disadvantage of EVA is what peter brewer, along with his co-authors in an article entitled economic value added (EVA) : its uses and limitations, calls the problem of size differences (Brewer, Chandra, & Hock, 1999, p.7). Brewer mentions that one can make the comparison of two companies and find that one company has a higher EVA, yet a lower ROI. This indicates that although one company had more value with fewer funds. As he says, larger plant or division will tend to have a higher EVA relative to its smaller counterparts.

Accuracy Another potential shortfall Brewer list is that since the calculation of EVA depends on the financial statements based on accounting principles, accountants can change factors to some degree to change the resulting EVA figure.

ACTIVITY-BASED MANAGEMENT (ABM) Traditional cost accounting permeates most organizations and is characterized by arbitrary allocations of overhead costs to items being produced. Typically, the company total overhead is allocated to goods produced based on volume-based measure. The underlying assumption is that there is a relationship between overhead and the volume based measure. Activity based costing was developed to provide better insight into how overhead costs should be allocated to individual products or customer. Businesses that do not use ABC typically only make simple adjustment to allocate overhead costs that do not accurately fit elsewhere. Business that use ABC link expenses related to recourse supplied to the company to the activities performed within the company. Through the use of ABC, expenses are allocated from resource to activities and then to products, service and customers. Using the ABC approach, companies get insight into profitable and profitless activities based on a customer or a product viewpoint. ABC then is a way of measuring which of the firms activities generate revenue in excess of costs. it provide keen insight into what is really providing value for customer. Advantage of ABC This system better assists in the process of understanding the concept of overhead costs The system better assists in the process of understanding the concept of overhead costs The system is easy to understand and interpret is it is accessible, useable and practically implement able across all norms of business set-ups This process allows companies to implement costing strategies across another diagonal of the firm as business processes, supply chains and value addition channels are ably and optimally analyzed in this process

Disadvantage Data collection process for this system is very time consuming The capital expenditure on the activity baed system and its subsequent running costs can be a road block for firm The system is very transparent which some managers would not approve of as they would like to keep some things out of the view of the owner of the company.

Meyer, Marshall W. 2002. Finding performance: The new discipline of management. In Business Performance Measurement: Theory and Practice, edited by Andrew Neely. Cambridge University Press.

Ratio result and Anaylsis Liquidity ratio Liquidity ratio refers to the ability of a company to interact its assets that is most readily converted into cash. Assets are converted into cash in a short period of time that are concerns to liquidity position. However, the ratio made the relationship between cash and current liability. The Liquidity ratio we can satisfy on the three ratios, those are: 1) Current ratio 2) Quick ratio or acid test 3) Cash Ratio Current ratio The current ratio is calculated by dividing current assets by current liabilities. Current asset includes inventory, trade debtors, advances, deposits and repayment, investment in marketable securities in short term loan, cash and cash equivalents, and current liabilities are comprised short term banks loan, long term loans-current portion, trade creditors liabilities for other finance etc.Generaly current ratio are acceptable of shot term creditors for any company.

Quick ratio or acid test Quick ratio or acid test ratio is estimating the current assets minus inventories then divide by current liabilities. It is easily converted into cash at turn to their book values and it also indicates the ability of a company to use its near cash. Cash Ratio The cash ratio is estimate to current liabilities into cash. It betoken the company can pay off it current liabilities given year from its operation.(Kieso, Weygandt,Warfield ,2001).It is the most famous ratio for realize the liquidity position of any company. Generally we know that current ratio and quick ratio is not good way to analysis the liquidity position for a company because it correspond of account receivable and inventory, which take time to convert to cash..Finally we can express that the cash ratio gives a better result. Asset management ratio Asset management ratios are most notable ratio of the financial ratios analysis. It measure how effectively a company uses and controls its assets. It is analysis how a company quickly converted to cash or sale on their resources. It is also called Turnover ratio because it indicates the asset converted or turnover into sales. Finally, we can recognize the company can easily measurement their asset because this ratio made up between assets and sales. Following are discussed seven types of asset management ratios: 1) Accounts receivable turnover 2) Average collection period

3) Inventory turnover 4) Accounts Payable turnover 5) Accounts Payable turnover in days 6) Fixed asset turnover 7) Total asset turnover Accounts receivable turnover The Accounts receivable turnover is comparison of the size of the company sales and uncollected bills from customers. If any company is difficult to collect money so it has large account receivable and also indicates the low ratio. Instead of, if any company aggressive collection money so it has low receivable and also high ratio. This ratio measure the number of times are collected during the period. Average collection period The average collection period is refers the average number of days of the company. It maintain the company to collection its credit policy. It has made good relationships between account receivable and outstanding payment. It measures the average number of days customers take to pay their bills to divide by account receivable turnover .The average number of day also indicate the 360 days . Inventory turnover ratio The inventory turnover ratio measures the number of times on average the inventory was sold during the period (Kieso, Weygandt, Warfield, 2001).The ratio is calculate the cost of goods sold by divide into average inventory. the measurement of average inventory is; at first we are add to years inventory after that we divide in to two. Inventory turnover ratio is also known as inventory turns ratio and stock turnover ratio. Accounts Payable turnover The accounts payable turnover ratio is compute by account payable to sale. It measures the tendency of a company credit policy whether extend account payable or not. Accounts Payable turnover in days Accounts Payable turnover in days is represent that the number of days of a company to pay their liability to their creditor. If any company number of days is more then the company is stretching account payable otherwise the company is not holding their account payable. It evaluates the account payable turnover by exchange into 360 days. Fixed asset turnover ratio Fixed asset turnover ratio is the sales to the value of fixed assets of the company.It determine the effectiveness in generating net sales revenue from investments in net property, plant, and equipment back into the company evaluates only the investments. Total asset turnover ratio The total asset turnover ratio measures the ability of a company to use its assets to generate sales.(Kieso, Weygandt, Warfield ,2001).It considers all assets including property ,plant and

equipment, capital working in process, investment long term, inventories, trade debtors, advances, deposit and prepayment, investment in market securities, short term loan, cash and cash equivalents etc. In these criteria a high ratio means the company is achieving more profit. Profitability Ratio Profitability ratios designate a company's overall efficiency and performance. It measures the company how to use of its assets and control of its expenses to generate an acceptable rate of return. It also used to examine how well the company is operating or how well current performance compares to past records of both pharmaceutical companies. There are five important profitability ratios that we are going to analyze: 1. Net Profit Margin 2. Gross Profit Margin 3. Return on Asset 4. Return on Equity 5. Operating profit margin Net Profit Margin The net profit margin is determined of net profit after tax to net sales. It argues that how much of sales are changeover after al expense .The higher net profit margins are the better for any pharmaceutical company. Gross Profit Margin ratio Gross margin express of the company efficiency of raw material and labor during the working process .If any company higher gross profit margin then the company more efficiency to controls their raw material and labors. So it is most important for performance evaluation of pharmaceutical company. It can be assigned to single products or an entire company. It determines the gross profit to divide by net sales. Return on asset ratio The Return on Assets ratio can be directly computed by dividing net income by average total asset. (Kieso, Weygandt, Warfield, 2001).It finds out the ability of the company to utilize their assets and also measure of efficiency of the company in generating profits. Return on Equity Return on Equity is compute by dividing net income less preferred dividend by average company stockholder equity. (Kieso, Weygandt, Warfield, 2001). It demonstrate how a company to generate earnings growth for using investment fund. It has some alternative name such Return on average common equity, return on net worth, Return on ordinary shareholders' fund. Operating profit margin ratio The operating profit margin ratio recognize of the percentage of sales to exchange into all cost and expenses after remaining sales. A high operating profit margin is preferred. Debt coverage ratio

Debt Coverage Ratio measures the percentage of the total asset provided by creditor. (Kieso, Weygandt, Warfield, 2001). If any company has realize their debt coverage ratio less than 1 then the company understand their income greater by a property is insufficient to collect their mortgage. So more than is 1 is best for any company. The Debt-coverage ratio we can satisfy on the three ratios, those are: 1. Debt ratio. 2. Time interest earned. 3. Book value per share. Debt ratio Debt Ratio is laid out the percentage of a company total asset the change into total debt. It is the most important financial ratio for performance evaluation of any pharmaceutical company. Time interest earned ratio The time interest earned ratio indicates the companys ability to meet interest payment as they come due.( Kieso,Weygandt, Warfield ,2001). It is reckon by dividing their earnings before interest tax by the interest charged. It has corroborated that the company able to pay its annual cost because this ratio denote the annual interest charged for any company. Book value per share ratio Book value per share is the amount each share would receive. If the company were liquidity on the basis of amount reported on the balance sheet. (Kieso,Weygandt, Warfield, 2001). Market value ratios The final ratios are the market value ratio. It also call share ownership ratio. It referred to the stockholder in analyzing present and future investment in a company. In this ratio the stockholders are interested in the way to certain variables affect the value of their holdings. In order to the stockholder is able to analyze the likely future market value of the stock market. There are two ratios under this ratio. They are as follows: 1. Earnings per Share (EPS) ratio 2. Market/Book ratio Earnings per Share (EPS) ratio Earnings per share ratio are a small variation of ownership ratio. It gauges by dividing net income into total number of share outstanding .it is most important for deterring of share price. Market/Book ratio The Market/Book Ratio refer to the company market value per share to its book value per share. It indicates management success in creating value for its stockholders. Advantages Helpful in analysis of financial statement, ratio analysis help the outsider just like creditor, shareholder to know about the profitability and ability of the company to pay them interest and dividend.

With the help of ratio analysis, a company may have comparative study of its performance to the previous years. In this way company comes to know about this weak point and be able to improve them Ratio analysis helps to work out the operating efficiency of the company with the help of various turnover ratios. Al turnover ratios are worked out to evaluate the performance of the business in utilizing resources.

Disadvantage Price level vhanges often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price level changes before any comparison. Ratio analysis is a technique of quantitative abalysis and thus, ignores qualitative factors, which may be important in decision making. In the absence of absolute data, the result may be misleading

Horizontal Analysis - the analysis is based on a year-to-year comparison of a firm's ratios, A useful way to analyze financial statements is to perform either a horizontal analysis or a vertical analysis of the statements. These types of analysis help a financial statement reader compare companies of different sizes, which can be difficult to do when the dollar amounts vary significantly, and evaluate the performance of a company over time. A procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration. Horizontal analysis, whilst simple to execute and useful to a certain extent, has its limitations. These limitations include:

Being highly dependent on the selection of base year and the period under examination in the financial model. Horizontal analysis provides little insight into why the trend occurred in a financial model. Horizontal analysis does not provide insight into whether the trend in the financial model results was superior/inferior to some benchmark. Horizontal analysis does not address the challenge of negative numbers.

Horizontal analysis is the comparison of historical financial information over a series of reporting periods, or of the ratios derived from this financial information. The analysis is most commonly a simple grouping of information that is sorted by period, but the numbers in each succeeding period can also be expressed as a percentage of the amount in the baseline year, with the baseline amount being listed as 100%.

A common problem with horizontal analysis is that the aggregation of information in the financial statements may have changed over time, due to ongoing changes in the chart of accounts, so thatrevenues, expenses, assets, or liabilities may shift between different accounts and therefore appear to cause variances when comparing account balances from one period to the next.

When conducting a horizontal analysis, it is useful to conduct the analysis for all of the financial statements at the same time, so that you can see the complete impact of operational results on a company's financial condition over the review period. For example, in the two examples below, the income statement analysis shows a company having an excellent second year, but the related balance sheet analysis shows that it is having trouble funding growth, given the decline in cash, increase in accounts payable, and increase in debt.

Vertical Analysis - the comparison of Balance Sheet accounts either using ratios or not, to get useful information and draw useful conclusions, and
Vertical Analysis Overview

Vertical analysis is the proportional analysis of a financial statement, where each line item on a financial statement is listed as a percentage of another item. Typically, this means that every line item on an income statement is stated as a percentage of gross sales, while every line item on a balanced sheet is stated as a percentage of total assets. The most common use of vertical analysis is within a financial statement for a single time period, so that you can see the relative proportions of account balances. Vertical analysis is also useful for timeline analysis, where you can see relative changes in accounts over time. Vertical Analysis of the Income Statement The most common use of vertical analysis in an income statement is to show the various expense line items as a percentage of sales, though it can also be used to show the percentage of different revenue line items that make up total sales. Vertical Analysis of the Balance Sheet The central issue when creating a vertical analysis of a balance sheet is what to use as the denominator in the percentage calculation. The usual denominator is the asset total, but you can also use the total of all liabilities when calculating all liability line item percentages, and the total of all equity accounts when calculating all equity line item percentages.