Measuring Financial Relationships
Companies are dynamic organizations with a myriad of business functions occurring simultaneously. In order for the company to grow, each business functions must produce an output in excess of the input.
For example, sales (the output) must be higher than the cost to produce (input). The marketing department’s output (sales gained through the marketing programs) must be in excess of the input (cost of the marketing campaign). The cost to produce (cost of goods) must be less than the selling price with enough profit remaining to cover overhead and allow for reinvestment.
As you can see from the above examples, financial relationships exist within departments and business functions. When the financial relationships are aligned properly, a business will grow. However, if the financial relationships (between the inputs and outputs) become inverted, financial problems will develop. Therefore, it is the financial relationships (rather than just a set of static numbers) that must be measured and monitored. By monitoring these vital relationships, managers can proactively monitor profitability and address issues before they become a crisis.
In summary, the process of measuring financial relationships achieves two main objectives:
(1) results can be measured against company determined set of performance indicators
(2) trends can be identified alerting managers to business possible concerns.
Excerpt from Simply Put Summary "Using Performance Measurements to Monitor Company Sales, Overhead and Profitability". To purchase the Summary or Financial Dashboards visit www.BusinessSimplyPut.com
For example, sales (the output) must be higher than the cost to produce (input). The marketing department’s output (sales gained through the marketing programs) must be in excess of the input (cost of the marketing campaign). The cost to produce (cost of goods) must be less than the selling price with enough profit remaining to cover overhead and allow for reinvestment.
As you can see from the above examples, financial relationships exist within departments and business functions. When the financial relationships are aligned properly, a business will grow. However, if the financial relationships (between the inputs and outputs) become inverted, financial problems will develop. Therefore, it is the financial relationships (rather than just a set of static numbers) that must be measured and monitored. By monitoring these vital relationships, managers can proactively monitor profitability and address issues before they become a crisis.
In summary, the process of measuring financial relationships achieves two main objectives:
(1) results can be measured against company determined set of performance indicators
(2) trends can be identified alerting managers to business possible concerns.
Excerpt from Simply Put Summary "Using Performance Measurements to Monitor Company Sales, Overhead and Profitability". To purchase the Summary or Financial Dashboards visit www.BusinessSimplyPut.com
Posted by LW and Associates at 4/25/2011 10:03 AM 
Categories: Finance
Tags: finance dashboards business simply out small business lori williams
Categories: Finance
Tags: finance dashboards business simply out small business lori williams
Comments