Financial & Non-financial performance measures

Tony Fortune, a tenured and well-respected turnaround guru, pondered his latest employment offer as he was driving home from an eventful meeting with a number of key

electronic equipment executives. He had been asked to assume the presidency at a poorly performing company, Electronic Equipment Venture (EEV), which is owned by

Electronic Equipment USA. Certainly he could refuse, but Tony flourished on reinventing and remolding underperforming companies. During the last 10 years, he was

instrumental in overseeing three successful business turnarounds, four consolidations of business units, and five successful divestitures. This latest endeavor, based

on his understanding, would be a challenge because the board of directors was seeking concrete data that would allow a quick resolution to the company’s problems.

Electronic Equipment Venture is a producer of electronic equipment dating back to the 1970s. During the company’s first 30 years, it was a pioneer in the development,

design, and manufacturing of electronic equipment. The competitive environment changed tremendously in the late 1990s, however, and EEV’s market share eroded from 75%

to 25% as other firms recognized this untapped market. Reacting to the loss in market share and unacceptable deterioration in profitability, management attempted to

revitalize the company by increasing the level of research and development as well as acquiring two smaller but more sophisticated firms.

With the added research and development, along with the additional resources, profitability continued to worsen. Faced with slow stock growth at Electronic Equipment

USA, primarily because of EEV, the board of directors has been pressed to make a decision regarding EEV. Recognizing that factual data is crucial to the decision

process, the board proceeded with authorizing management to employ the appropriate resources needed to conduct the evaluation and valuation of EEV.
Accepting this challenge and knowing he has only 5 weeks to complete the analysis, Tony spent several days developing a strategy for generating a proper and thorough

valuation and evaluation of the firm’s financial position.

1,200-1,500 Words

The CEO of the parent company agrees with numerous practitioners who promote the use of nonfinancial measures as well as financial measurements to evaluate the

performance of a given firm. Nevertheless, Tony agrees that nonfinancial measurements can be valuable, and he tends to support the premise that when evaluating

operating performance, benchmarking competitors, and comparing industry results, nonfinancial measurements have little measurable value.
Tony has asked you to present a position paper comparing the effectiveness and reliability of using financial measures as opposed to nonfinancial measures. Include the

•    Provide an analysis of the utilization of assets in terms of efficiency (or inefficiency).
•    What are measurements associated with returns and activity ratios?
◦    Explain why you selected each specific measurement.
•    Then, review the electronic equipment industry using financial ratios.
◦    Assess the firm’s operating performance against these ratios.
•    Research the financial reports of 1 company in the electronic equipment industry, and
compare it with the performance of Electronic Equipment Venture.
•    Include an Excel spreadsheet to support your analysis.
•    Use this information to support your position, and compare the effectiveness and
reliability of using financial measures as opposed to nonfinancial measures.

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