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Coursework title: Individual Assignment

2. Subject Code: MBAPML202

3. Subject Name: Enterprise Performance Management

4. Academic Year: 2018 June Start

5. Student First Name: VINOD

6. Student Last Name: KUMAR JAKHAR

7. Student ID No.: 180755118265

8. Student’s personal Email ID: vinod4dubai@gmail.com

1. Write Short Notes on Du-Pont Analysis, Balanced Score Card.

DU-PONT ANALYSIS

DuPont Analysis is an extended examination of Return on Equity (ROE) of a company which analyses Net
Profit Margin, Asset Turnover, and Financial Leverage.

Return on Equity= Net Profit Margin x Asset Turnover Ratio x   Financial Leverage
= (Net Income / Sales) x (Sales / Total Assets) x (Total Assets / Total Equity)

The company can increase its Return on Equity if it-

1. Generates a high Net Profit Margin.
2. Effectively uses its assets so as to generate more sales.
3. Has a high Financial Leverage.

DuPont analysis has 3 components to consider;

1.Profit Margin– This is a very basic profitability ratio. This is calculated by dividing the net profit by total
revenues. This resembles the profit generated after deducting all the expenses. The primary factor remains
to maintain healthy profit margins and derive ways to keep growing it by reducing expenses, increasing
prices etc, which impacts ROE.
For example; Company X has Annual net profits of Rs 1000 and Annual turnover of Rs 10000. Therefore,
the net profit margin is calculated as
Net Profit Margin= Net profit/ Total revenue= 1000/10000= 10%

2. Total Asset Turnover– This ratio depicts the efficiency of the company in using its assets. This is
calculated by dividing revenues by average assets. This ratio differs across industries but is useful in
comparing firms in the same industry. If the company’s asset turnover increases, this positively impacts
the ROE of the company.
For example; Company X has revenues of Rs 10000 and average assets of Rs 200. Hence the asset turnover
is as follows
Asset Turnover= Revenues/Average Assets = 1000/200 = 5

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3. Financial Leverage- This refers to the debt usage to finance the assets. The companies should strike a
balance in the usage of debt. The debt should be used to finance the operations and growth of the
company. However, usage of excess leverage to push up the ROE can turn out to be detrimental for the
health of the company.
For example; Company X has average assets of Rs 1000 and equity of Rs 400. Hence the leverage of the
company is as
Financial Leverage = Average Assets/ Average Equity= 1000/400 = 2.5

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BALANCED SCORE CARD

Definition: The balanced scorecard is a strategy performance management tool – a semi-standard structured report,

that can be used by managers to keep track of the execution of activities by the staff within their control and to
monitor the consequences arising from these actions.

The phrase 'balanced scorecard' primarily refers to a performance management report used by a
management team, and typically this team is focused on managing the implementation of a strategy or
operational activities
The critical characteristics that define a balanced scorecard are:

 its focus on the strategic agenda of the organization concerned

 the selection of a small number of data items to monitor
 a mix of financial and non-financial data items.

The Balanced Scorecard Framework

Throughout the process of creating the BSC, Norton and Kaplan realized an organization must first begin
with goals that can be broken down into four distinct perspectives that are uniquely connected:

1. Financial goals— “What financial goals do we have that will impact our organization?”
2. Customer goals— “What things are important to our customers, which will in turn impact our
financial standing?”
3. Process goals— “What do we need to do well internally, in order to meet our customer goals, that
will impact our financial standing?”
4. People (or learning and growth) goals— “What skills, culture, and capabilities do we need to have
in our organization in order to execute on the process that would make our customers happy and
ultimately impact our financial standing?”

Over time, the concept of a strategy map was created. A Balanced Scorecard strategy map is a one-page
visual depiction of an organization’s scorecard. It has the ability to show the connections between all four
perspectives in a one-page picture.

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2. Explain ROI.

RETURN ON INVESTMENT (ROI)

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare
the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a
particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is
divided by the cost of the investment. The result is expressed as a percentage or a ratio.

The return on investment formula is as follows:

"Current Value of Investment” refers to the proceeds obtained from the sale of the investment of interest. Because
ROI is measured as a percentage, it can be easily compared with returns from other investments, allowing one to
measure a variety of types of investments against one another.

Understanding Return on Investment (ROI)

ROI is a popular metric because of its versatility and simplicity. Essentially, ROI can be used as a rudimentary gauge
of an investment’s profitability. This could be the ROI on a stock investment, the ROI a company expects on
expanding a factory, or the ROI generated in a real estate transaction. The calculation itself is not too complicated,
and it is relatively easy to interpret for its wide range of applications. If an investment’s ROI is net positive, it is
probably worthwhile. But if other opportunities with higher ROIs are available, these signals can help investors
eliminate or select the best options. Likewise, investors should avoid negative ROIs, which imply a net loss.
In the study of Consumer Behaviour main focus is the customer satisfaction because customer is the only person
with whose presence businesses actually exists.

Benefits of the ROI Formula

There are many benefits to using the return on investment ratio that every analyst should be aware of.
 
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#1 SIMPLE AND EASY TO CALCULATE
The return on investment metric is frequently used because it’s so easy to calculate.  Only two figures are
required – the benefit and the cost.  Because a “return” can mean different things to different people, the
ROI formula is easy to use, as there is not a strict definition of “return”.
 #2 Universally Understood
Return on investment is a universally understood concept so it’s almost guaranteed that if you use the
metric in conversation, then people will know what you’re talking about.

Limitations of the ROI Formula

While the ratio is often very useful, there are also some limitations to the ROI formula that are important
to know.  Below are two key points that are worthy of note.

#1 THE ROI FORMULA DISREGARDS THE FACTOR OF TIME

A higher ROI number does not always mean a better investment option. For example, two investments
have the same ROI of 50%. However, the first investment is completed in three years, while the second
investment needs five years to produce the same yield. The same ROI for both investments blurred the
bigger picture, but when the factor of time was added, the investor easily sees the better option.
The investor needs to compare two instruments under the same time period and same circumstances.

#2 THE ROI FORMULA IS SUSCEPTIBLE TO MANIPULATION

An ROI calculation will differ between two people depending on what ROI formula is used in the
calculation. A marketing manager can use the property calculation explained in the example section
without accounting for additional costs such as maintenance costs, property taxes, sales fees, stamp
duties, and legal costs.
An investor needs to look at the true ROI, which accounts for all possible costs incurred when each
investment increases in value.

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2. What is the importance of auditing?

The term audit usually refers to a financial statement audit. A financial audit is an objective examination
and evaluation of the financial statements of an organization to make sure that the financial records are a
fair and accurate representation of the transactions they claim to represent. The audit can be conducted
internally by employees of the organization or externally by an outside Certified Public Accountant
(CPA) firm.

 There are three main types of audits: external audits, internal audits, and Internal Revenue Service
(IRS) audits.
 External audits are commonly performed by Certified Public Accounting (CPA) firms and result in an
auditor's opinion which is included in the audit report.
 An unqualified, or clean, audit opinion means that the auditor has not identified any material
misstatement as a result of his or her review of the financial statements.
 External audits can include a review of both financial statements and a company's internal controls.
 Internal audits serve as a managerial tool to make improvements to processes and internal
controls.

1. Provides Objective Insight

You can’t audit your own work without having a definite conflict of interest. Your internal auditor, or
internal audit team, cannot have any operational responsibility to achieve this objective insight. In
situations where smaller companies don’t have extra resources to devote to this, it’s acceptable to cross-
train employees in different departments to be able to audit another department. By providing an
independent and unbiased view, the internal audit function adds value to your organization.

2. Improves Efficiency of Operations

By objectively reviewing your organization’s policies and procedures, you can receive assurance that you
are doing what your policies and procedures say you are doing, and that these processes are adequate in
mitigating your unique risks. By continuously monitoring and reviewing your processes, you can identify

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control recommendations to improve the efficiency and effectiveness of these processes. In turn, allowing
your organization to be dependent on process, rather than people.

3. Evaluates Risks and Protects Assets

An internal audit program assists management and stakeholders by identifying and prioritizing risks
through a systematic risk assessment. A risk assessment can help to identify any gaps in the environment
and allow for a remediation plan to take place. Your internal audit program will help you to track and
document any changes that have been made to your environment and ensure the mitigation of any found
risks.

4. Assesses Controls

Internal audit is beneficial because it improves the control environment of the organization by assessing
efficiency and operating effectiveness. Are your controls fulfilling their purpose? Are they adequate in
mitigating risk?

5. Ensure Compliance with Laws and Regulations

By regularly performing an internal audit, you can ensure compliance with any and all relevant laws and
regulations. It can also help provide you with peace of mind that you are prepared for you next external
audit. Gaining client trust and avoiding costly fines associated with non-compliance makes internal audit
an important and worthwhile activity for your organization.
Still have questions about developing your own internal audit program? Contact us today in the form
below and let’s start building your internal audit program.

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Reference’s:
 Enterprise Performance Management Done Right. 2013 by Ron Dimon
 C orporate Performance Management, By David Wade and Ronald Recardo
 Singhania University-MBA Text Book, E.2017, Basic of Marketing
 C onsumer Behavior: Buying, Having, and Being E.12th by Michael R. Solomon
 https://en.wikipedia.org/
 https://www.investopedia.com/

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