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Caterpillar article
1. Caterpillar uses “return on sales” as a financial measure. What is return on sales and when should a company use it? If the return on sales ratio indicates a problem, what can be done to correct the issue?
The return on sales ratio compares after tax profit to sales. It can help an operation determine if they are making enough of a return on their sales effort. This should be used if a company is experiencing a cash flow crunch, because its mark-up is not enough to cover expenses. Return on sales can help point this out, and allow you to adjust prices for an adequate profit. Also, this figure can be used to spot trends … if the return on sales appears to be dropping over time, it could be a signal that an organization will soon be experiencing financial problems.
The ratio can be improved by increasing cash flows. A company can increase cash flows by:
1. Organizing a billing schedule
2. Stretching out payables
3. Taking advantage of early payment incentives
4. Ensuring pricing is sufficient to cover costs
5. Not buying all in one place
6. Forming a buying cooperative
7. Renegotiating insurance and supplier policies
8. Tightening inventory
9. Leasing instead of buying (equipment, services, etc)
2. Performance measurement systems can be used in many fields. List two and explain how they are used.
The purpose of any measurement system is to provide relative feedback in order to increase your chances of achieving goals efficiently and effectively. The ultimate aim of implementing a performance measurement system is to improve the performance of the organization. If you can get your performance measurement right, the data you generate will tell you where you are, how you are doing, and where you are going.
The field of education -- Performance measurement systems can be used at the classroom level to measure the ability of the students to respond to material learned. It can also be used at higher levels to determine eligibility for accreditation and/or funding.
In large corporations -- Performance measurements can be used to document development activity and funding associated with the projects and programs being undertaken by members of the same company who work in different offices across time zones. This will facilitate communication and decrease cost of the projects by allowing all those participating to track the status of the others.