All the Following Are Limitations of Short-Term Financial Performance Indicators

question 86

Multiple Choice

All the following are limitations of short-term financial performance indicators except:

• A) Employees and managers can take actions that improve short-term financial performance at the expense of long-term performance.
• B) Focusing on individual cost variances can result in optimum local but not global (i.e., firm-wide) performance.
• C) Operating personnel may not readily understand or be able to interpret financial-performance indicators.
• D) Senior managers typically find non-financial performance indicators more useful than summary financial-performance indicators.

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Definitions:

Cost Of Equity

The return that investors expect for providing capital to a company, often seen as the risk-free rate plus a premium for the equity risk.

Growth Rate

The percentage change in the value of a specific metric (e.g., revenue, population) over a designated period.

Cost Of Capital

The earnings threshold a business needs to meet on investment endeavors to preserve its market worth and secure financing.

Debt-Equity Ratio

A financial comparison indicating the relationship of debt to equity in financing a company’s assets.