Goal

A set of benchmarks for judging the organizations performance. Goals represent a managerial commitment to achieve specific performance targets with in a specific time frame. Goals converts the companys mission, strategic vision and objectives into specific performance targets, so the organizations progress can be measured.

characteristics of Goal
Help in Strategic decision making for what to accomplish. Goals describe objectives that are specific with respect to magnitude and time. A goal is a realistic, measurable, time-dated target to be accomplish in the future. Goals are like stair steps to your mission and vision. Goals become the bridge to turn your mission and vision to reality.

Goal setting
Goal setting means stating goals in measurable terms and then holding managers accountable for meeting their assigned targets with a specified time frame. Realistic goals are developed and set from the SWOT analysis. They are not wishful thinking. Goals are Set in terms of Performance target not only for the organization as a whole, but also for each of the organizations separate businesses, product lines, functional areas, and department. Every unit in a company needs concrete, measurable performance targets that contribute meaningfully toward achieving company objectives.

Goal congruence
The goal congruence is to insure that all its operations and activities are set up in support of the organization's goals. This means that the organization will review all its operations and activities to insure that none of them (those operations and activities) work in a way that limits or inhibit the organization's ability to reach its goals, whatever they may be.

factors that influence goal congruence

Formal and informal factors influence human behaviour in organisation, consequently it effects degree to which goal congruence can be achieved. formal factors are : Strategic plans Budget Rules for physical control, Task control Management Control System itself Performance evaluation and report writing Informal factors are: External factors -desirable behaviour of the society, - work ethics and culture of local manpower - industry specific attitudes and norms. Internal factors: -Organisation own culture -Resistance to change

Business Benefits of Clear and congruent Goals

1. Increased Operating Margins Employees who clearly understand their individual goals-and how they relate to those of your company-naturally become more engaged with their work. Once employees see how they can make a direct contribution to your company's success, they begin to focus on finding ways to work smarter and more efficiently. This boosts employee productivity and will naturally lead to increased operating margins and profitability for your company. Quicker Execution of Company Strategy Tighter goal alignment and goal visibility allows for quicker execution of company strategy by enabling management team to more effectively allocate labor resources across various projects. It also increases overall efficiency by ensuring employees are not duplicating the efforts of others. Understand more clearly all responsibilities associated with specific goals Eliminate redundancies across job titles Staffs Focus on company's most pertinent goals

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Con..
3. Reduced Employee Turnover

The business value of having employees engaged in their work cannot be overestimated, clear goal alignment can create greater employee ownership in your company's ultimate success. Goal alignment also lets you establish a true pay-for-performance culture at your company by providing the foundation for closely linking reward systems with both individual and team performance.

financial goal setting

Financial objectives focus on achieving acceptable profitability in a companys pursuit of its mission/vision, long-term health, and ultimate survival. Financial objectives are signal of commitment to such outcomes as good cash flow, creditworthiness, earnings growth, an acceptable return on investment, dividend growth, and stock price appreciation.

Examples of financial goals

Maximizing share holders value Growth in revenues Growth in earnings Wider profit margins Bigger cash flows Higher returns on invested capital Attractive economic value added (EVA) performance Attractive and sustainable increases in market value added (MVA) A more diversified revenue base

Financial Forecast
A financial forecast is normally an estimate of future financial outcomes for a company or country. Using historical internal accounting and sales data, in addition to external market and economic indicators, a financial forecast is an economist's best guess of what will happen to a company in financial terms over a given time periodwhich is usually one year. The most difficult aspect of preparing a financial forecast is predicting revenue. Future costs can be estimated by using historical accounting data; variable costs are also a function of sales.

 Incremental ROI

Incremental Profit = ROI Total incremental Cost

WHAT IS EVA ?
Most successful performance metric

EVA is a measure of financial performance based on the context that all capital has a cost and that earning more than the cost of capital creates value for shareholders.

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UNDERSTANDING EVA AND ITS COMPONENTS

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EVA
EVA = NOPAT CAPITAL COST EVA = NOPAT COST OF CAPITAL x CAPITAL EMPLOYED EVA = (RATE OF RETURN COST OF CAPITAL) x CAPITAL Where: Rate of return = Nopat/Capital Cost of capital = Cost of Equity x Proportion of equity from capital + Cost of debt x Proportion of debt from capital x (1-tax rate). EVA = (ROI WACC) x CAPITAL EMPLOYED

MARKET VALUE ADDED(MVA):

Measure of wealth which a company has created for its investors Cumulative measure of corporate performance Primary objective of co.- Maximizing MVA MVA = [(Shares outstanding x Stock price) + Market value of preferred stock + Market value of debt] Total capital Book value and market value of debt and preference share is same so, MVA= Market Value of Equity book value of equity If company is not a listed company then Market Value of Equity = Book Value of Equity + Present value of all future EVA MVA= Present value of all future EVA

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EVA V/S MVA

ECONOMIC VALUE ADDED MARKET VALUE ADDED

Attempts to measure the true economic profit produced by a company

Diff between current market value of company & capital contributed by investors.

Performance metric

Wealth metric

Useful for investors-determine the company value

Improves the book value of the company shares

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ROE
Return on Equity: Return on equity is also known as return on shareholders investment. The ratio establishes relationship between profit available to equity shareholders with equity shareholders funds. Return on Equity = Net Profit after Interest, Tax and Preference Dividend/Equity Shareholders Funds x 100 Where Equity Shareholders Funds = Equity Share Capital + Reserves and Surplus Fictitious Assets Objective and Significance: Return on Equity judges the profitability from the point of view of equity shareholders. This ratio has great interest to equity shareholders. The return on equity measures the profitability of equity funds invested in the firm. The investors favour the company with higher ROE.

 Return on Investment or Return on Capital Employed: This ratio shows the relationship between the profit earned before interest and tax and the capital employed to earn such profit. Return on Capital Employed = Net Profit before Interest, Tax and Dividend/Capital Employed x 100 Where Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus + Long-term Loans Fictitious Assets Or Capital Employed = Fixed Assets + Current Assets Current Liabilities Some time it is calculated on Net operating profit after tax ROI = NOPAT/capital employed Objective and Significance: Return on capital employed measures the profit, which a firm earns on investing a unit of capital. The profit being the net result of all operations, the return on capital expresses all efficiencies and inefficiencies of a business. ROI calculations can be easily manipulated to suit the user's purposes, and the result can be expressed in many different ways. When using this metric, make sure you understand what inputs are being used.

ROI

EPS
Earning Per Share: Earning per share is calculated by dividing the net profit (after interest, tax and preference dividend) by the number of equity shares. Earning Per Share = Net Profit after Interest, Tax and Preference Dividend/No. Of Equity Shares Objective and Significance: Earning per share helps in determining the market price of the equity share of the company. It also helps to know whether the company is able to use its equity share capital effectively with compare to other companies. It also tells about the capacity of the company to pay dividends to its equity shareholders.

Return on equity
Return on equity: This ratio shows the relationship between the profit earned after interest and tax and the share holders capital to earn such profit. = Net Profit after Interest, Tax /equity x 100 Where Equity = Share Capital (Equity) + Reserves and Surplus + P & L A/c