Performance is the final result of an activity. The type of organizational unit and objectives to be achieved will ultimately decide what is measured. Primary measures of corporate performance include traditional measures like ROI< EPS and ROE and shareholders value like EVA and MVA with stakeholders’ measures.
- ROI (Return on investment)
ROI = net income after tax ÷ total asset - ROE (Return on equity)
ROE = net income ÷ total equity - EPS (Earnings per share)
EPS = net earnings ÷ no. of shares.
Limitations:
- EPS does not consider the time value of money.
- EPS can have several different but equally acceptable values.
- ROI can be easily manipulated.
- The time span for ROI measurement is very short.
- EPS and ROE are unrelated to stock price.