Metrics (ROI) and Accounting Run Charts (#32)
/In this episode, we discuss how run charts can be used within an accounting operation, as well as the different types of metrics relating to the return on investment. Key points relating to accounting run charts are:
Accounting run charts are used to track transaction volume by activity. They can be assembled with Excel, or through an accounting system custom report.
Run charts can be used to justify changes in employee headcount.
Run charts can also be used to monitor employee performance, especially when processing volumes per person decline.
Run charts can be useful for deciding whether to use temps or hire full-time workers, depending on the transaction pattern observed over time.
Run charts can be used to monitor the seasonal elements of transaction volumes.
Key points relating to return on investment metrics are:
ROI metrics are needed for the analysis of investments.
Return on assets; includes all assets, to give a better picture of the total investment in assets.
Return on operating assets; only includes those assets actively being used to generate revenue.
Return on equity percentage; used by investors. Can be enhanced by using more debt to buy back shares, which can cause leverage problems.
Return on common equity; subtracts out the effects of preferred stock dividends.
Equity growth rate; shows how the equity balance is being impacted by inflows and outflows.
Economic value added; incremental rate of return in excess of the cost of capital.