Transfer Pricing-SLP
The relevance of financial ratios cannot be overstated when it comes to the measurement of an entity's performance. It should, however, be noted that not all performance measures can be expressed as a ratio. This text concerns itself with various other performance measures: operating leverage, Return on Investment (ROI), EVA, and gross profit margin.
Transfer Pricing-SLP
Operating Leverage
According to Shim and Siegel (2008, p. 198) "operating leverage, a measure of operating risk, arises from the company's use of fixed operating costs." As the authors further point out, a simple indication of the said financial measure would be the "change in sales on earnings before interest and taxes" (Shim and Siegel, 2008, p. 198). It is important to note that a high degree of operating leverage is seen as an indicator that small changes in sales result in significant changes in not only EBIT, but also return on equity, return on assets and return on capital invested (Brigham and Ehrhardt, 2013). The degree of operating leverage could be computed by dividing the change in operating income/change in EBIT with the change in sales, in percentage terms (Shim and Siegel, 2008).
The relevance of operating leverage cannot be overstated. This is particularly the case given that investors can make use of this particular performance measure to evaluate an entity's risk profile. However, like is the case with most performance measures, operating leverage does not tell the whole story,...
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(2009). Google's Big IPO, Five Years Later. [Article]. Wall Street Journal - Eastern Edition, 254(40), C3. Davis, H.Z., & Peles, Y.C. (1993). Measuring Equilibrating Forces of Financial Ratios. The Accounting Review, 68(4), 725-747. Google Inc. (2012). 2011 Annual Report. Mountain View, CA: Google Inc. Kirby, J. (2009). How Google really does it. (Cover story). [Article]. Canadian Business, 82(18), 54-58. Lee, M.-j. (2010). Measuring the Usage Effects of Tying a Messenger to Windows: A
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Performance Measures In this text, I concern myself with performance measurement. In addition to a performance measure of my choice, some of the other performance measures I will discuss include EVA, ROI, and operating leverage. In so doing, I will not only compute the said performance measures but also reflect on their advantages and disadvantages. My companies of choice for this discussion are Apple Inc. And Google Inc. Performance Measures: Computations Formula Apple Google Degree of
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