What is the best way to measure company performance?

Long-term ROA (Return on Asset) trends highlight the importance of capability leverage options. Mounting economic pressures are largely obscured by the metrics and time frames we use. This doesn't just reflect the current economic downturn. These longer-term trends suggest our traditional approaches to business are fundamentally broken. This decline is occurring in spite of a movement to more asset-light business activities and the absence of a crucial asset from the balance sheet — the talent of the workforce.

The Board should focus on an comprehensive all-inclusive growth, which demands shifting the focus beyound the traditional Financial metrics of ROI,Profitability etc.

Like all Oncologists, one should also understand that all Growth is not necessarily good ! Its crtical for the Unit to understand the cost of acquiring the growth and

"Acid Test Raio" or Return on Assets(ROA) is the primary performance criteria of a company. This is Earnings before interest and taxes(EBIT) divided by Assets. It doesn't take into purvery the interest obligations or tax liabilities.

Modern businesses use something called VAR(Value at risk) which is the tail probablility of loss in demand. Businesses adjust to this tail probability decline in revernue by raising Marketing activities and other performance management strategies. Now that tail probabilities have created so much fuss and trouble, I am not sure how long companies will follow this method of improving performance.

My posting to you about complexity with link to a consulting firm in Italy, I believe is another way of reducing criticality and thus complexity accumulated in companies. This is none other than "minimal process" organizations much in vouge in US lately. Though they incorporate the mathematical models of complexity analysis, they still use the business science tools to reduce crticality there.

If you were to ask most anyone how they would measure company performance, they might give you a funny look and say, "How much money the company makes, of course! Isn't that obvious?" To a certain extent, they are right. Profitability, gross revenues, return on capital, etc. are the critical, "bottom line" kind of results that companies must deliver to survive. Management often deludes itself that the “bottom line” is everything.  But as Polaroid’s millionaire inventor Edwin Land cautioned: “The ‘bottom line’ is in heaven!”. Unfortunately, if senior management only focuses on the financial health of the organization, several unfortunate consequences arise. One of these is that financial measures are "lagging indicators" of success. This means that how high or low these numbers go depends on a wide variety of events (talked about later) that may have happened months or years before and that you have no immediate control of in the present. Being in a plane falling from the sky is a bad time to realize that you should have done routine maintenance, and oh, by the way, filled it with gasoline!

Another of the consequences of just focusing on financial measures is that they have nothing to do directly with the customers who use your organization's product or service. Decisions may be made that help your organization financially, but hurt the long-term relationships with one's customers, who may eventually reduce the purchases or leave you altogether. We all may have been in the spot of paying for car repairs that we need, but we know that we are paying too much and will never go back to that service station again.

Instead of such a short-sighted, after-the-fact view of company performance, we need a more comprehensive view with an equal emphasis on outcome measures (the financial measures or lagging indicators), measures that will tell us how well the company is doing now (current indicators) and measures of how it might do in the future (leading indicators). A “balanced scorecard” is a method to measure not just how you’ve been doing, but also how well you are doing (“current indicators”) and can expect to do in the future (“leading indicators”).  Then you’ll have clear picture of reality.

The balanced scorecard is a way of measuring organizational, business unit or department success; balancing long-term and short-term actions; balancing different measures of success (Financial, Customer, Internal Operations, Human Resource Systems & Development); and a way of tying strategy to measures to action.

The best way to measure company's performance is to compare all the 3 factors- ROIC, Growth & TRS.

Top performance company provides-

1. Superior and sustainable return on investment (ROI)

2. Growth while maintaining superior return on investment, and

3. Superior total shareholder returns

If you would like to know more about this then please read my blog article "ROIC, Growth, & Total Return to Shareholders (TRS) are always aligned".

http://deepakagrawalblog.wordpress.com/2009/12/24/does-roic-growth-total-return-to-shareholders-trs-are-always-aligned/

pofitability and liqudity is the most parameter of measurment of a company perfomence.

A Key Performance Indicator (KPI) is a specific measure of an organization’s performance in an area of its business. It is a general concept, with different implementations depending on the type of business and goals of the organization.

From the perspective of balance scorecard, KPIs can be categorized by financial, customer, internal processes and learning&growth.

For more information, you can refer to www.smartKPIs.com

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The best way to measure performance of company is Return on capital employed How much company earns on how much money company employed It gives the true picture of company,s performance.

Strange as it sounds....I dont know any way of measuring from any single or group of indices. It takes all the ones mentioned here and much more. Public relations, Share holders, satisfied clients, return on investments are reflect their aspect.....sort of like pieces of the pie. But if you wwant the complete picture of the performing company, one has to do an in depth search assemble all this data (and much more besides) and put the pieces of the pie together to form the circle.....the full picture.

Any one piece of data missing then the assessment of the company is that much incomplete. In many way it is like the pieces of the pie or a jigsaw puzzle....even one piece missing makes the picture....well.....essentially that much inaccurate and incomplete.