Market Share and Performance

¶ … Company Performance

One of the most important aspects for determining the success, performance, and profitability of a company is performance measurement. Performance measurement is basically described as a system that improves individual performance towards supporting and realizing organizational performance. The measurement of company performance has attracted considerable attention in the recent past because of its significance towards the achievement of continuous improvement in a business. Additionally, performance measurement is regarded as the process for determining how individuals and organizations have been successful in achieving desired objectives and implementing strategies (Amaratunga, Kulatunga & Baldry, n.d.). Given its significance, there are several ways for measuring company performance to help improve success and profitability.

Eight Performance Measures

As previously mentioned, there are several measures for determining a company's performance relative to its business strategies, objectives, and goals. These performance measures have been developed and are utilized to examine various aspects that relate to performance. These different measures are commonly utilized to evaluate performance on the premise that all organizational stakeholders expect good performance, especially increased revenues across all operations. When measuring a company's performance, an important aspect of accounting measures is to represent the various constructs of interest (Choi, Hecht & Tayler, 2013). Since the most commonly used approaches to determine a company's performance are based on accounting principles, they represent different constructs of interest in the performance of a business. The accounting constructs help in determination of a company's performance based on the generated revenues.

In this case, the use of the eight performance measures in determining an organization's performance will be carried out based on Baldwin Sensors Company. The organization is a leading supplier of sensors to several manufacturing businesses that use them for different products such as LCD televisions, mechanical watches, and timing machines (Beechler et al., 2015). Since its inception in 1910, Baldwin Sensors has been largely successful and established a good reputation among its customers. However, the company has recently faced intense competition from several firms including Andrews, Erie, and Digby. In light of the intense competition, Baldwin Sensors believes in accurate forecasting as a means for enhancing performance and success. The key success measures that Baldwin Sensors can utilize to determine performance are . . .

Cumulative Profit

Cumulative profit is a key performance measure that is used to determine how profitable a business has been over time. When using this approach, a company's performance is basically determined on the premise of profitability over a specific period of time. The formula for determining cumulative profit is the sum total of all net profits over the specific period of time i.e. a year. For Baldwin Sensors, net income would be the primary metric for determining cumulative profits. The sum total of all net incomes based on information in the pro forma net income will be utilized to determine cumulative profits. For instance, the company will add all net incomes for each month to determine the cumulative profits. Since net income is an important metric in determining revenues and competitiveness of Baldwin Sensors, the weight of Cumulative Profit in determining the firm's performance is 25%.

Average ROS

Average ROS is a performance metric that gives analyst indications of the profit margin of a product in terms of positioning and pricing policies. Additionally, average Return on Sales (ROS) is used to determine demand and supply in the market/industry. When an industry is characterized by intense competition, the prices of products are usually subjected to intense pressures, which in turn contribute to decline in average ROS. Average ROS is determined through dividing net profit by net sales. Since Baldwin Sensors has the capability to control costs and enjoy high margins, this metric weighs 25% in determining its performance.

Average ROE

Average Return on Equity (ROE) is a performance metric that is obtained or determined through dividing net profit by total equity. This measure shows how effectively a business organization is utilizing investors' money towards achievement of business goals and objectives. This is the most commonly cited statistic for describing a company's financial performance and is very useful to stockholders and investors. For Baldwin Sensors, average ROE accounts for 25% of its performance because of emphasis on profits and efficiency. For example, the company's emphasis on profits and efficiency contribute to a higher average ROE than its rivals because of a highly-leveraged financial structure and debt-funded stock buybacks (Beechler et al., 2015).

Ending Stock Price

Ending stock price is an important measure for determining a business organization's performance since it's an indication of the value of a company's share by independent investors. This key success measure is determined as a function of EPS, book value, and average dividend. For Baldwin Sensors, ending stock price weighs 20% in determining performance and success because of the relatively higher stock prices that are brought by higher profits and less equity. Actually, the company relatively controls share prices through repurchase and dividend payout even during periods of low sales.

Ending Market Capitalization

Market capitalization gives an indication of the actual value of the company beyond the price of its share. This performance metric demonstrates the market's estimation of a business organization's worth. It is calculated through identifying the average number of shares over a given period of time and multiplying it by the ending stock price (Adams, n.d.). Currently, Baldwin Sensors has a higher price per share, but its current financial structure objectives could result in lower number of shares. While the company has faced intense competition in the recent past, it still has a high market share in the industry. Therefore, ending market cap weighs very low i.e. 5% in determining its performance.

Average Asset Turnover

The average asset turnover provides indications on the volume of sales more than it determines or indicates profitability. This measure shows the effectiveness of the asset base in generating more revenues. Information derived from determining asset turnover calculations are used to make decisions regarding the aggressiveness of pricing policy, organizational structure, and level of backward integration. Average asset turnover is calculated through dividing period sales by average total assets over a period of time (Adams, n.d.). Average asset turnover weighs 0% in determining Baldwin Sensors' performance because heavy investments in fixed assets would be disadvantageous for the company for ratios that are denominated by total assets. For instance, the company will face numerous challenges and difficulties in using assets to maintain a competitive turnover during period that are characterized by low sales.

Average ROA

Average Return on Assets (ROA) is basically an efficiency ratio that determines performance through comparing profits with the required asset base. Consequently, average ROA is determined through dividing the net profit by the company's total asset base. Similar to asset turnover, average return on assets weigh 0% in determining the performance of Baldwin Sensors in the increasingly competitive industry. This is primarily because of the potential disadvantage of heavy investments in fixed assets though the firm expects to utilize its assets efficiently to obtain a competitive advantage.

Ending Market Share

Ending market share is a key success measure used to determine company performance based on the firm's share in the market. This measure is used to determine the total industry sales that a business organization has captured (Adams, n.d.). The formula for determining ending market share is the percentage share of market sales that the company has achieved. Ending market share has no weight i.e. 0% in determining the performance of Baldwin Sensor because the firm's product positioning increases the likelihood of a high market share. However, defending the high market share is relatively difficult, especially if sales decrease. In such instances, Baldwin Sensors is ready to focus on profitability and efficiency at the expense of market share.

Relevant Performance Measures for Baldwin Sensors

As shown in the above analysis, not every performance measure may be relevant to Baldwin Sensors given the nature of its operations, position in the market, and its strengths and opportunities. Based on this analysis, the three key measures to act as the foundation for determining Baldwin Sensors' performance are Cumulative Profit, average ROS (return on sales), and average ROE (return on equity). These three measures have been chosen because of their weight and the role they play in determining the company's performance in the above analysis. Additionally, these measures have been selected because of the company's focus on efficiency and profits, efficient resource allocation, ability to control cost and enjoy high margins, and the establishment of a high-leveraged financial structure.