Slide 10.

F13a Val av finansiella mått och risk för

myopia (dvs kortsiktigt beteende)

Merchant; chapter 10:

Financial Performance Measures and
Their Effects

Dessa bilder kan fungera som inläsningsstöd – inte säkert att

de behandlas på föreläsning. Jag har kompletterat med något
exempel, skrivit en del kommentarer, allt i syfte att öka
förståelsen /Johan Å

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.2

Summary measures

 Summary, single-number, aggregate, bottom-line financial

measures of performance.
 Reflect the aggregate or bottom-line impacts of multiple
performance areas.
– e.g., accounting profits reflect the aggregate effects of both
revenue- and cost-related decisions.
 Two types:
– Market measures
» Reflect changes in stock prices or shareholder returns.
– Accounting measures
» Defined in either residual terms (net income after taxes, operating profit,
residual income, economic value added) or ratio terms (return on
investment, return on equity, or return on net assets).

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.3

Market measures

 Timely — measured in short time periods

 Precise — in well-functioning capital markets
 Objective — not manipulable by the managers whose
performances are being evaluated
 Congruent — the most direct manifestation, or closest proxy,
of the theoretical notion of firm value
 Cost effective — do not require any company measurement
expense
 Understandable — in terms of what the measures represent
(changes in market value of the firm)

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.4

Limitations
 Feasibility
– Market measures are not available either for privately-held
firms or wholly-owned subsidiaries or divisions, and they are
not applicable to non-profit organizations.

 Controllability
– Market measures can generally be influenced to a significant
extent only by the top few managers in the organization, those
who have the power to make decisions of major importance.

 Realized performance
– Market measures are heavily influenced by future expectations,
but these expectations might not be realized.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.5

Limitations (Continued)
 Congruence?
– For competitive reasons, markets are not always fully
informed about a company’s plans and prospects,
and hence, its future cash flows and risks

– Market valuations can be affected by “carefully timed”

or “managed” disclosures which are not always in
the company’s long-term interest

– Other “anomalies”

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.6

Limitations (Continued)

 These limitations of market measures cause

organizations to look for surrogate measures
of performance.

– Accounting measures are the most important

surrogates used, particularly at management
levels below the very top management team.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.7

Accounting measures

 Timely — measured in short time periods

 Precise — subject to extensive accounting rules
 Objective — audited by independent auditors
 Congruent
» In for-profit firms, accounting profits or returns are relatively
congruent with the true firm goal of maximizing shareholder value.
» Positive correlations between accounting profits and changes in
stock prices.

 Cost effective — already required for financial reporting

 Understandable

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.8

Limitations (Continued)
 Accounting income does not reflect economic
income perfectly, because accounting measures:
– Are transactions oriented
– Are dependent on the choice of measurement method
– Are conservatively biased
– Ignore intangibles
– Ignore the cost of equity capital
– Ignore risk
– Focus on the past The change in the value of the entity
over a given period, where “value” is
obtained by discounting future CFs.

CF = cash flow (värdering genom diskontering av framtida kassaflöde – se bild 20)

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.9

Myopia

 The motivational effect of these measurement limitations

can be perverse because managers who are motivated
to produce accounting profits or returns can (in the
short-term) do so by:

– Not making investments, even worthwhile ones

» Investment myopia Exempel: RT kontra RI!

– Making operational decisions to shift income

across periods, even when harmful long-term
Exempel:
» Operational myopia
Inslag av redovisnings-
manipulering
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
 Redovisningskreativitet styr operativa beslut….
B
Vad hände i Eltel inför börsnoteringen?
A. I stora projekt gjordes resultat-
avräkningen på ett ”djärvt” sätt….

B. Vinst i en tvist ”smetades ut” som

rörelsevinst i andra projekt.

A
Slide 10.11

Redovisningskreativitet styr operativa beslut…

Ur SvD september 2014

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.12

ROI performance measures

 Return on Investment
» ROI is a ratio of the accounting profits earned by
the business unit divided by the investment
assigned to it.

» ROI = profits ÷ investment base

 Residual Income
» RI is a dollar amount obtained by subtracting a
capital charge from the reported accounting profits.

» RI = profits - capital charge

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.13

Problems caused by ROI-measures

 Numerator
» Accounting profits, hence,
» ROI contains all problems associated with these profit
measures.

 Denominator
» How to measure the fixed assets portion?

 Suboptimization
» ROI-measures can lead division managers to make
decisions that improve division ROI even though the
decisions are not in the corporation's best interest.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.14

Other issues
 Suboptimization is not an issue with residual income (RI)
measures when the capital charge is set at or above the cost
of capital.

 ROE measures induce managers to use debt financing

(if they have financing authority).
Mkt sällsynt att finansiering är
decentraliserat i koncerner

» This is not the case with RI if the capital charge is equal

to the weighted average cost of debt and equity.

 ROA measures induce managers to lease assets (again, if

they have authority over such decisions).

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.15

The fixed assets portion

 Net Book Value
» Both ROI and RI get better merely to passage of time
» Both ROI and RI are usually overstated if the division
includes a relatively large number of older assets
» Example
 Invest $100; Cash flow $27 per year; Depreciation $20 (5 years)

Incremental Capital
Yr NBV Income Charge RI ROI
1 100 7 10 -3 7%
2 80 7 8 -1 9%
3 60 7 6 1 12%
4 40 7 4 3 18%
5 20 7 2 5 35%
(=27-20)
10 %

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
Slide 10.16

Misleading performance signals

 Division managers are encouraged to retain assets beyond
their optimal life and not to invest in new assets.

 Corporate managers may be induced to over-allocate

resources to divisions with older assets.

 Combined with the suboptimization issue, managers of

entities with older assets, and hence a higher ROI, are
likely to be more reluctant to invest in “desirable” projects
with an IRR higher than the corporate cost of capital.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 3rd and Fourth Edition © Pearson Education Limited 2012, 2017
 Misleading performance signals…….

Exempel:
Anläggningsinvestering; 150 Mkr
Årliga inbetalningsöverskott; 20 Mkr/år
Ekonomisk livslängd; 15 år
Kalkylränta; 10%

Johan Åkesson
Redovisningen kontra kassaflöde
Handelshögskolan vid Göteborgs Universitet
 Exempel - fortsättning:
Exempel: Diskontering, ränta = 10%
Anläggningsinvestering; 150 Mkr 20 20 20 osv
Årliga inbetalningsöversk; 20 År
Mkr/år
Ekonomisk livslängd; 15 år 150 Mkr
Kalkylränta; 10%

Bör investeringen genomföras?

Hur bedömer vi det?

L
Redovisnings- O
Kalkyl-
mässigt? G mässigt?
Balansräkning I År

K
150 Mkr

+150?
? Risk? Tid?
Räntabilitet över tiden? NPV – nuvärde idag?

Johan Åkesson
Investeringskalkylering - redovisningen?
Handelshögskolan vid Göteborgs Universitet
 Exempel - fortsättning:
 Kalkylmässig lönsamhet (NPV-nuvärde) = + 2,1 Mkr
Logiskt beslut = investera!

 Räntabilitetseffekt med linjär avskrivning:

Bokfört
Räntabilitet år 1 = 6,7 % värde

Räntabilitet år 2 = 7,1 % 150

Räntabilitet år 3 = 7,7 %
Räntabilitet år 4 = 8,3 % osv..
År
15

Logiskt beslut = investera ej!

Praxis är att investeringsutvärdering sker med NPV-kalkyl
och löpande verksamhetsutvärdering med räntabilitet, ex.
ROCE, eller något residualmått som RI, EVA m.fl.

Johan Åkesson
Beräkningar / resultat
Handelshögskolan vid Göteborgs Universitet
 Exempel - fortsättning:
Effekten blir att en godkänd investering blir
en kvarnsten för räntabiliteten de första åren!

Obs!
Detta problem identifierades redan på 1960-talet men
någon åtgärd har sällan gjorts i praxis. Skälet till det kan
vara att många företag historiskt investerat ungefär lika
mycket varje år och då har den synliga störningen blivit
liten. Idag är investeringstakten i många företag
ojämnare och beräkningsproblemen därför större.
Inte ens möjligheten att ersätta linjär avskrivning har
blivit populärt…..

Johan Åkesson
Effekt ’externredovisningsstörning’ & reflektion
Handelshögskolan vid Göteborgs Universitet
Kritiken av redovisningen har utmynnat i många
s.k. värdebaserade modeller för styrning
(”shareholder value” – debatten under 1990 och tidigt 2000-tal)

Nuvärde
Diskontering (%)

Tid
År 1 År 2 År 3 År 4 År 5 År 6 osv.

Värdet på verksamhetens delar och helhet utgörs av det

framtida kassaflödet diskonterat till idag!

Finansiellt mål blir att ’maximera’ nuvärdet vilket leder

till andra finansiella mål – nedbrytning av ingående
faktorer! (tid, kassaflöde och kalkylränta)
Johan Åkesson
Handelshögskolan vid Göteborgs Universitet