How to Review the Performance of a Business
There are several reasons why one might wish to review the performance of a business. Perhaps you are the owner of the business or a member of management who needs to measure the organization's current performance in order to make informed decisions about future management issues. Or, maybe you are a potential investor who would like to analyze the stability of the business before handing over your hard earned money. Whatever your reasons, there are several scientific and mathematical business analysis methods you may choose to utilize to gather the necessary information.
Other People Are Reading
Instructions
-
-
1
Analyze the financial statements of the business using financial ratio analysis. Ratio analysis measures the performance of various line items from the financial statement to determine how well the organization manages such aspects as inventory, assets and liabilities. There are a variety of ratios and formulas one might use to analyze the performance of a business. For example, determining an organization's liquidity ratio will show how well the organization is able to meet it current financial obligations. Meanwhile, return on investment ratios determine how much money is earned from invested capital. The Credit Research Foundation provides specific equations for these and other financial ratio analyses that will be helpful in your review of the business' performance.
-
2
Utilize the Balanced Scorecard approach to analyze the business. First developed by Drs. Robert Kaplan of Harvard Business School and an associate, David Norton, in the 1990s, this approach reviews both financial and non-financial metrics to measure the performance of a business. While financial metrics may give you a good clue to the past performance of the business, these numbers alone are not a clear indicator of the organization's future performance. Using the balanced scorecard approach, you will review financial processes, internal business processes, employee training programs, customer satisfaction ratings and even the organization's corporate culture in order to determine whether the day to day processes of the business are properly aligned with its mission and vision.
-
-
3
Perform a SWOT analysis to determine the strengths, weaknesses, opportunities and threats of the business and analyze how the organization deals with each. Strengths and weaknesses are internal factors which may affect the performance of the business. These include such aspects as the management, programming and financial capabilities of the business. Opportunities and threats are external aspects which include various opportunities and threats which may occasionally pop up within the industry. Changes in laws and regulations, as well as changing attitudes among consumers, also offer opportunities and threats which are worth analysis.
-
1
