Operating Performance Measurements

This chapter addresses measurements that can be used to describe an organization's operating performance in areas such as sales, gross margins, investment income, operating profit, and net profit. Some of the performance measurements include operating assets ratio, sales to operating income ratio, sales margin, gross profit percentage, gross profit index, investment income percentage, operating profit percentage, etc. Operating assets ratio is designed for use by managers to determine which assets can be safely eliminated from a company without impairing its operational capabilities. Sales to operating income ratio is useful for determining the results of operations before unrelated income or expense is added to or subtracted from a company's financial results. Sales margin is a ratio clustering sales and distribution expenses with the cost of goods sold, thereby isolating all profits from a company's revenue-generating activities. Gross profit percentage reveals the profit left over from operations after all variable costs have been subtracted from revenues. Investment income percentage is used to determine the effectiveness of a company's investment activities. Operating profit percentage reveals the return from standard operations, excluding the impact of extraordinary items and other comprehensive income, which reveals the extent to which a company is earning a profit from standard operations, as opposed to resorting to asset sales or unique transactions to post a profit.