How do we balance and structure the financial funding options, resources and risks of the business?
The Balance Sheet decision area balances the financial structure and resources of the business for better performance. A higher debt-to-equity ratio means higher rewards. It also means greater risk. If operating profits fall, this may jeopardize the company’s ability to deliver on interest and debt repayments.
Capital employed—working capital plus fixed assets—and return on capital employed (ROCE) are also critical factors that influence lenders and shareholders. ROCE reflects how well the business can convert investment into profit.
Investors perceive an intensive and high-capital-employed industry to be risky.
With the Balance Sheet decision area, you can set planning goals and scorecarding metrics for performance management elements such as:
- Capital employed and ROCE ($ and %).
- Debt to equity ratio (%).
- Assets and fixed assets ($).
- Debt and liabilities ($).
- Equity ($).
- Market value ($).
You can analyze these goals and metrics by a number of dimensions to find opportunities and issues in the data:
- Fiscal month / year.
- Brand and product lines.
- Balance sheet lines / class.
- Division / department.
Using the Balance Sheet decision area
You set targets based on your goals and metrics in Balance Sheet. You monitor your success by looking at how you measure up against your targets. Further, you dive into your results to find out more about these elements driving performance management.
- Market value ($): Are future market conditions likely to be favorable for our business ?
- Debt ($): How much debt, long and short term, can the business safely take on?
- Assets ($): Is more cash investment needed in the company’s future assets ?
