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Issues with Balanced Scorecard: A Case Study

I. "I think Fitzharrys Ltd's financial assertions are imperfect.

a. They contain nothing at all about the company's plans and costs for the year to 31 Dec 2005, nor about performance since the year end. Its directors are failing in their obligation to keep shareholders totally informed of the business's current performance. "

The most current records that are available are the information closing in 2004. Although they might not exactly be entirely current for the complete advantage of the shareholders, they will be the only records that people have to go on. Nevertheless the results that we do have appear to paint a confident enough picture for all of us to be confident going forward. They show that Fitzharrys Ltd profit percentage and other key indicators have risen inexorably over the past few years, presenting Larkmead much to go on when looking at a potential purchase. The results which we have so far are definitely more than satisfactory, and therefore for us they don't pose a significant problem

b. "We know that the company has significant amounts of goodwill represented by its founded name, professional personnel and dedicated customers. How come this advantage not appear in the financial claims?"

There are many possible good reasons as to why the company's goodwill will not come in the financial statements. Goodwill is in itself an intangible advantage. Whilst there are means of measuring goodwill, it is not one of the main element indicators that we are looking at. It is true that the goodwill of the company may increase what we must purchase Fitzharrys Ltd, however goodwill is very much an important advantage which we will have the many great things about in virtually any merger. A merger destroys the target's 'old' goodwill and creates 'new' goodwill to appear in consolidated books. Consequently I am unconcerned about the fact that goodwill is not represented on these claims, and believe that it will give a benefit for Larkmead after any takeover. The actual fact that it does not come in the financial statements is much more likely than not because of the fact that goodwill is difficult to define in purely financial terms.

II. "I think its financial statements are wrong. The company increased its revenue but its cash balance has declined in the year. How do this be accurate?"

The idea that its revenue are up is seen to be the main factor. There are also several other factors to be taken into consideration, and I really do not think that these information are necessarily wrong. When a revenue is recorded other changes on the balance sheet depend on revenue trades and expense trades. Often a transfer does not significantly have an effect on the balances in an account as many other factors come into play as a result. The numbers which are available are satisfactory and are enough to suggest that Fitzharrys Ltd will be a good investment.

III. "The amount of money Fitzharrys Ltd is owed by its customers has truly gone up by over 55% from 2003 to 2004, which in a time of recession. Have they lost control over the situation? "

They may be owed money; however they are a company who are paid in large by the public sector. Central and local government are not a high debts risk and we can be rather confident that they can pay back the money which is owed to Fitzharrys Ltd. We will not need debt collection agencies to cope with any central government clients. The united states had not been in recession in 2003 and 2004, and for that reason construction projects performed by the federal government or local councils were not unusual, and I am sure that Fitzharrys ltd possessed good reasons for accepting credit from these businesses. We can certainly be totally positive that the money will be repaid. Therefore in this case it isn't fair to say that the management at Fitzharrys Ltd has lost control over the problem. On the contrary they have got gained several good and reliable business contacts.

We can be self-confident to the consistency of Fitzharry Ltd's clients that the situation is not as bad as if the debtors were specific customers of dubious credit history.

IV. "A similar thing has occurred to its inventory - it has gone up by practically 40% as well. Surely this must point out too little management control?"

The proven fact that Fitzharrys Ltd's inventory has gone up by almost 40 per cent does not always indicate that there has been any loss of management control by the business. An inventory is a set of goods and materials which is held by the company - in this case it will be made up essentially of construction related stock. In a growing development company it is only natural that the inventory on that companies literature will also increase. In the case of stock which is performed by the company, the stock is all produce that can be sold on by the company and therefore increases Fitzharrys Ltd's overall value and desirability. Any businesses which stocks and options too little inventory will then struggle to take benefit of large requests from any customers. It can be viewed as generally good overall practice for Fitzharrys Ltd to have this large a listing as it represents stock you can use for the benefit of clients or, alternatively, can be sold at a earnings.

However I do share your matter about the level of inventory, at least to a certain extent as there are sometimes problems which a lot of inventory can bring. For one thing there are many things that can be concealed by the profile of inventory. Also, whilst it can be an asset on the total amount sheet, at the same time it is also money tied up which could be utilized for another purpose other than stock just sitting down in a warehouse. Plus, it ought to be taken into account that a high inventory triggers significant tax bills, which is clearly not desired. However looking at the overall picture I am unconcerned concerning this go up in inventory. It shows that the company is growing, can expect further business, and it does not in any way seem to point any lack of management control by Fitzharrys Ltd.

V. "I may have to market some of my stocks in Larkmead plc. My stockbroker informs me companies like ours have a price/revenue ratio of about 11 to at least one 1. What does this mean, and what does it indicate about the price I should sell my stocks for?"

Price/Income (P/E) Proportion is computed as Market Value Per Show over the wages Per Talk about (EPS) of the business in question. A high P/E means that traders are expecting higher earnings development in the future from that company. The low the mandatory rate of go back then the higher the development of earnings. The purchase price earnings ratio will rise when the speed of return on surplus rises relative to the pace of development of profitable investment opportunities. As bubbles fill price-earnings ratios will go above those predicted by fundamental examination. Therefore lately many businesses may have observed inflated Price Income ratios, and with the oncoming recession it could moderately expected that the Price Earnings proportion will show up.

In your circumstance 11/1 means 11. In the same way as 49/7 calculates as seven - this is one way P/E is computed. 11 is just below what you may expect to be the average for a P/E proportion, and for that reason will fetch a fairly good total on the stock market.

A well-balanced scorecard is a performance managing tool which is utilized for making sure the various component parts of an organisation talk about one general overall distributed goal. It really is a highly effective way of assessing corporate performance. A well-balanced scorecard approach focuses not only on financial effects, but also on other key organisational factors, such as an organsiations' employees and its own customers. The well balanced scorecard strategy has been enormously successful and popular[1] since its benefits. It is estimated that by 2005 the Balanced Scorecard methodology had been used by 44 per cent of the UK's top FTSE 100 companies[2] meaning that it offers almost eclipsed the traditional concentrate on reported profitability by organisations

The first individuals to place forward the balanced scorecard approach were Robert Kaplan and David Norton in the early nineties, although many of the tactics that they create had been in use for a while, with companies such as General Electric being pioneers in the 1950s. Kaplan and Norton were worried about producing alignment in companies and suggested the utilization of the well balanced scorecard methodology, whilst in addition they suggested other methods such as Strategy Maps. [3]

The strategic healthy scorecard is built up around central key perspectives - often four perspectives but sometimes up to five perspectives. These are the financial perspective, the customer point of view, the internal techniques perspective, the point of view of advancement and improvement, and the employee perspective. The financial perspective was previously the only real point of view which mattered in many organisational models, and the disproportionate give attention to reported success was a problem. Hence the utilization of the term 'balanced' in the healthy scorecard, as the other perspectives provide a balance from the financial point of view, thus assisting organisations to provide a highly effective overall strategy.

Many of the benefits of balanced scorecards result from the implementation methods. There are usually four processes in implementing balanced scorecards. First of all translating the eye-sight of the company into functional goals. Secondly communicating that perspective and linking that vision to individual performances of associates of personnel operating within the organsiational framework. Thirdly business planning, and lastly receiving responses and altering the strategy in accordance with that feedback. The well balanced scorecard depends on key performance signals such as client satisfaction and overall equipment success. The well-balanced scorecard identifies the strategic linkages to incorporate performance across organisations, and aligns strategic initiatives.

A balanced scorecard will have a set of goals that are linked to each of the 4 or 5 core perspectives. After the goals from the perspectives have been decided after then links are found between the goals over the various perspectives in order to join up the various component parts of the companies overall corporate strategy. These various links help to provide a highly effective overall joined-up commercial strategy. The role of the well balanced scorecard is therefore to clarify strategy, to target an organisation also to make the strategy easily functional. The well-balanced scorecard really helps to promote a standard perspective and it operates as an umbrella for a number of often disconnected corporate programmes. Another advantage of the well balanced scorecard is that it's not over-complicated, and it therefore will not result in confusion regarding the meaning of the various perspectives and goals. In order to prevent any such confusion it is worth being wary of setting an increased number of targets, as this is often a disadvantage[4], introducing bafflement to a relatively simple system.

A balanced scorecard is an extremely attractive tool as it can help to offer an overall organisational performance, which is very much indeed important in business. A good example of an organistaion which normally has an obvious overall strategy is a soccer team. Whereas at a football club everyone knows that your target is to rating goals and progress the league desk, such clear goals do definitely not exist within an organisation, particularly for specific employees employed in that organisation who often only see there existence as within their little team. The aim of the well balanced scorecard was to move away from this narrow perspective, and to generate a broader eyesight where what the business is trying to achieve becomes more apparent for employees. A sporting analogy can frequently be successful in an organsiation

As with soccer clubs, in business a straightforward goal is definitely most desirable. Improvement must be communicated to individuals in a small business, in a similar way to how they would in a soccer team. A balanced scorecard provides a methodology that transforms the eyes of most employees within a way, and helps those at the top of the organisation keep in connection with those in all of those other organsiation. The role of responses in the well balanced scorecard method is vital.

The healthy scorecard is however not entirely without its critics. One criticism of well balanced scorecards is they are not based on any proven financial or financial theory, and that the relative youth of the idea means that few openings have yet to be picked in the scorecard. There is also a opinion that positive feedback from well-balanced scorecards could maintain part due to sort of placebo result from companies who are in thrall to the meant wonder of balanced scorecards, and are incapable of looking at balanced scorecards with a critical eye. These criticisms will still take many years to be borne out, however it does seem at the moment that those companies - both general population sector and private sector - are incredibly happy with the innovations that the well-balanced scorecard has brought. Because of this criticisms of the healthy scorecard approach are still very much few and far between.

In conclusion a balanced scorecard is very useful in providing an overall organisational eye-sight and organisational strategy. Through the healthy scorecard the often undervalued employees are included within an overall eyesight in an organsiation, and are helped to comprehend their overall role and their obligations. In this manner corporate and business performance is assessed and reviews can subsequently get back to the top of the organsiation so that advancements can be effectively implemented. The traditional concentrate on reported profitability lacks the subtlety of the well-balanced scorecard approach, which is perhaps why top organsiations in both the consumer and the private sector are significantly using the well-balanced scorecard method of the analysis of corporate and business performance. It certainly appears to be a highly successful function of assessment, and any criticisms are yet to be completely fleshed out. By giving a construction of analysis which works this effectively, overall organisational goals can become more easily set out any executed.

Bibliography

Kaplan, R. S. & Norton, D. P. 1996, The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, Harvard.

Kpcke, Richard W. , "Profits and Stock Prices: The Importance of Being Earnest", New England Economic Review, 1992, p 26+

Maclean, Rob, "Alignment: Utilizing the Balanced Scorecard to set-up Corporate Synergies", Australian Journal of Management, Volume level: 31. Concern: 2, 2006, p 367+

Stancil, John L. , "Balanced Scorecard Diagnostics-Maintaining Maximum Performance", Issues in Accounting Education, Volume: 21. Issue: 2, 2006, p 158+

"Kaplan Brings Balanced Scorecard to Brum", The Birmingham Post, March 11 2005

Footnotes

[1] Maclean, Rob, "Alignment: Utilizing the Balanced Scorecard to produce Corporate Synergies", Australian Journal of Management, Volume: 31. Concern: 2, 2006, p 367+

[2] "Kaplan Brings Balanced Scorecard to Brum", The Birmingham Post, March 11 2005

[3] Maclean, Rob, "Alignment: Utilizing the Balanced Scorecard to Create Corporate Synergies", Australian Journal of Management, Size: 31. Concern: 2, 2006, p 367+

[4] Stancil, John L. , "Balanced Scorecard Diagnostics-Maintaining Maximum Performance", Issues in Accounting Education, Amount: 21. Issue: 2, 2006, p 158+

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