Eight Performance Measures for Baldwin Sensors Company

Introduction to Performance Measurement

One of the most important aspects for determining the success, performance, and profitability of a company is performance measurement. Performance measurement is broadly described as a system that improves individual performance in support of organizational goals. The measurement of company performance has attracted considerable attention in recent years because of its significance to the achievement of continuous improvement in business. Additionally, performance measurement is regarded as the process of determining how successfully individuals and organizations have achieved desired objectives and implemented strategies (Amaratunga, Kulatunga & Baldry, n.d.). Given its significance, there are several ways to measure company performance that help improve success and profitability.

Eight Performance Measures Explained

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 related to performance. They are commonly used to evaluate performance on the premise that all organizational stakeholders expect good results, especially increased revenues across all operations. When measuring a company's performance, an important function of accounting measures is to represent the various constructs of interest (Choi, Hecht & Tayler, 2013). Since the most commonly used approaches to determining company performance are based on accounting principles, they represent different constructs of interest in business performance. These accounting constructs help determine a company's performance based on generated revenues.

The eight performance measures discussed below are applied to Baldwin Sensors Company. Baldwin Sensors is a leading supplier of sensors to several manufacturing businesses that use them for products such as LCD televisions, mechanical watches, and timing machines (Beechler et al., 2015). Since its founding in 1910, Baldwin Sensors has been largely successful and has built a strong reputation among its customers. However, the company has recently faced intense competition from several firms, including Andrews, Erie, and Digby. In light of this competition, Baldwin Sensors relies on accurate forecasting as a means of enhancing performance and success.

Cumulative profit is a key performance measure used to determine how profitable a business has been over time. When using this approach, a company's performance is determined on the basis of profitability over a specific period. The formula for cumulative profit is the sum total of all net profits over a given period — for example, a year. For Baldwin Sensors, net income is the primary metric for determining cumulative profits. The sum of all net incomes reported in the pro forma net income statement is used to calculate this figure. For instance, the company adds all net incomes for each month to determine cumulative profits. Because net income is an important metric in evaluating revenues and competitiveness, cumulative profit carries a weight of 25% in determining Baldwin Sensors' performance.

Average Return on Sales (ROS) is a performance metric that provides analysts with indications of a product's profit margin in terms of positioning and pricing policies. It is also used to assess demand and supply conditions in the market. When an industry is characterized by intense competition, product prices are typically subject to significant pressure, which contributes to a decline in average ROS. Average ROS is calculated by dividing net profit by net sales. Because Baldwin Sensors has the capability to control costs and enjoy high margins, this metric carries a weight of 25% in determining its performance.

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

Ending stock price is an important measure for determining a business organization's performance, as it reflects the value assigned to a company's shares by independent investors. This key success measure is determined as a function of earnings per share (EPS), book value, and average dividend. For Baldwin Sensors, ending stock price carries a weight of 20% in determining performance and success because of the relatively higher stock prices generated by higher profits and lower equity. The company also exercises some control over share prices through share repurchases and dividend payouts, even during periods of lower sales.

Market capitalization provides an indication of a company's actual value beyond the price of its individual shares. This performance metric reflects the market's estimation of a business organization's worth. It is calculated by multiplying the average number of shares outstanding over a given period by the ending stock price (Adams, n.d.). Currently, Baldwin Sensors has a higher price per share; however, its current financial structure objectives could result in a lower number of shares outstanding. While the company has faced intense competition recently, it retains a significant share of the industry. As a result, ending market capitalization carries a very low weight of 5% in determining its performance.

Average asset turnover provides indications of sales volume rather than direct measures of profitability. This measure shows the effectiveness of a company's asset base in generating revenues. Information derived from asset turnover calculations is used to make decisions regarding pricing aggressiveness, organizational structure, and the level of backward integration. Average asset turnover is calculated by dividing period sales by average total assets over a period of time (Adams, n.d.). Average asset turnover carries a weight of 0% in determining Baldwin Sensors' performance because heavy investments in fixed assets would be disadvantageous for ratios denominated by total assets. Specifically, the company would face significant challenges in using assets to maintain a competitive turnover ratio during periods of low sales.

Average Return on Assets (ROA) is an efficiency ratio that determines performance by comparing profits with the underlying asset base. It is calculated by dividing net profit by the company's total assets. Similar to asset turnover, average ROA carries a weight of 0% in determining Baldwin Sensors' performance in the increasingly competitive industry. This is primarily because of the potential disadvantage of heavy investments in fixed assets, although the firm expects to utilize its assets efficiently to maintain a competitive edge.

Ending market share is a key success measure used to determine a company's share of total industry sales (Adams, n.d.). It is expressed as the percentage of market sales captured by the company. Ending market share carries a weight of 0% in determining Baldwin Sensors' performance because the firm's product positioning already increases the likelihood of a high market share. However, defending that market share is relatively difficult, especially if sales decline. In such cases, Baldwin Sensors is prepared to prioritize profitability and efficiency over market share.

Conclusion

Performance measurement is an important aspect of determining the success and profitability of a company relative to its business strategies, objectives, and goals. There are several metrics utilized to determine a company's performance, including cumulative profit, average ROA, average asset turnover, average ROE, average ROS, ending market share, ending stock price, and ending market capitalization. These metrics provide different indications and information about a firm's performance. In addition, business organizations should develop and implement suitable strategies that enhance competitive advantage.