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The Controller's Function: The Work of the Managerial Accountant, 4th Edition by Steven M. Bragg

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Chapter 20

Performance Measurements and Trends

If the controller is to give quality information to management, then his or her ability to look objectively at the business is crucial. The controller must be familiar with its strengths and weaknesses and must understand the interrelationships of the functions of the organization. An important part of this knowledge revolves around the information provided by those ratios that describe the condition of the business as well as the trends of key operating statistics.

The board of directors and management use performance measures to judge and correct the performance of the company. Bank lending officers use financial ratios to determine how much funding the company is qualified to receive. Investors, suppliers, and securities analysts use the information to evaluate the creditworthiness and valuation of the company.

The use of a few sound relationships is recommended, rather than deluging top management with many ratios and trends. However, the controller should maintain an extensive set of performance measurements and trends to better explain to management the background and reasons for the conditions that exist in the company. In general, emphasis should be on detailed analysis by the controller and on simplicity in what is presented to management.

The performance measures described in this chapter tend to reflect patterns that are indicative not only of economic conditions, but also of stages in a company's growth. These stages can ...

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