Performance Measurement Tools and Balance Scorecard

The assignment provided is about the use of non-financial performance indicators and organizational performance. It mentions various studies and research papers that have analyzed the impact of performance management systems on financial performance. The balanced scorecard concept, advantages, and limitations are also discussed. Furthermore, it highlights the importance of risk and financial management in construction, environmental management practices, and their effect on firm financial performance. The assignment concludes with a review of corporate social responsibility and its impact on corporate financial performance.

FINANCIAL
PERFORMANCE
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1 ..................................................................................................................................3
Ratio analysis to evaluate the financial performance of Marks and Spencer.........................3
QUESTION 2 ..................................................................................................................................9
Kaplan and Norton’s Balanced Scorecard as a Strategic Management System.....................9
QUESTION 3 ................................................................................................................................12
Proposed balance scorecard for Marks and Spencer ...........................................................12
Critical success factors ........................................................................................................14
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Financial performance management is elated to monitoring the performance of the
organisation on the basis of the financial data to enhance the performance and profitability of
firm. In this study, Marks and Spencer will be consider which is an international organisation
performing its operations indifferent regions. It is offering different products which consist of
clothing, home appliance and luxury food products. This assignment will provide information
about the ration analysis in order to evaluate the financial performance of the organisation.
Moreover, it will contain the information regarding the balance scorecard for measuring the
performance of the organisation to improve the performance for the growth and success of the
organisation. Furthermore, it will develop a balance scorecard for the company to include the
critical success factors of the organisation.
QUESTION 1
Ratio analysis to evaluate the financial performance of Marks and Spencer
particular Marks and Spencer TESCO Sainsbury
2016 2017 2018 2016 2017 2018 2016 2017 2018
Sales 10555 10622 10698 54333 55917 57491 23506 26224 28456
Gross profit 4128 4088 4047 2854 2902 3350 1456 1634 1882
Net profit 407 117 26 138 -40 1206 471 377 309
Current assets 1461 1723 1318 14828 15417 13726 4444 6322 7866
Current liabilities 2105 2368 1826 19714 19405 19238 6724 8573 10302
Shareholder
equity 3445 3156 2957 8626 6438 10480 6365 6872 7411
Stock 800 759 781 2430 2301 2263 968 1775 1810
debts 2926 2768 2768 15564 20010 15144 3884 4292 4288
Fixed assets 5027 4838 4394 29076 30436 31136 12529 13415 14135
Opening
inventory 798 800 759 2957 2430 2301 997 968 1775
Cogs 6427 6534 6651 51579 53015 54141 22050 24590 26574
quick assets 661 964 537 12398 13116 11463 3476 4547 6056
Gross profit ratio 39.11 38.49 37.83 5.25 5.19 5.83 6.19 6.23 6.61

Net profit ratio 3.856 1.101 0.243 0.254 -0.072 2.098 2.004 1.438 1.086
Current ratio 0.69 0.73 0.72 0.75 0.79 0.71 0.66 0.74 0.76
Quick ratio 0.31 0.41 0.29 0.63 0.68 0.60 0.52 0.53 0.59
Debt/ equity ratio 0.85 0.88 0.94 1.804 3.108 1.445 0.610 0.625 0.579
Average
inventory 799 780 770 2694 2366 2282 983 1372 1793
Inventory
turnover ratio 0.12 0.12 0.12 0.05 0.04 0.04 0.04 0.06 0.07
fixed assets
turnover ratio 2.10 2.20 2.43 1.87 1.84 1.85 1.88 1.95 2.01
EPS 0.49 0.14 0.03 0.05 -0.01 0.44 0.23 0.17 0.13
Gross profit 2016 2017 2018
Marks and Spencer 39.11 38.49 37.83
Tesco 5.25 5.19 5.83
Sainsbury 6.19 6.23 6.61

From the above graph and table it is identified about gross profit ratio which shows that
the gross profitability of Marks and Spencer is higher than that of its competitors Tesco and
Sainsbury. It shows that the profitability of Marks and Spencer is higher which is beneficial for
the growth and success of the organisation. The gross profit margin of Marks and Spencer in the
year 2016 was 39.11% whereas Tesco gross profitability in the same years was equal to 5.25%
and Sainsbury profitability is equal to 6.19%.
Net profit 2016 2017 2018
Marks and Spencer 3.86 1.10 0.24
Tesco 0.25 -0.07 2.10
Sainsbury 2.00 1.44 1.09
Marks and Spencer Tesco Sainsbury
0
5
10
15
20
25
30
35
40
45
39.11
5.25 6.19
38.49
5.19 6.23
37.83
5.83 6.61
2016
2017
2018

From the above graph and table it can be interpreted about the net profitability of the
firms. It shows that net profitability of Marks and Spencer is higher than that of Tesco and
Sainsbury which means the financial performance of Marks and Spencer is better than that of its
competitors. It is shown that Marks and Spencer net profit margin is equal to 3.86 in 2016
whereas Tesco net profitability in the same years was 0.25 and Sainsbury was having 2.00. Over
the years the net profitability of Marks and Spencer is reducing whereas net profitability of
Tesco was higher than that of Marks and Spencer and Sainsbury. It means the trend of the net
profitability for marks and Spencer is reducing which is not good for the financial performance
of the company.
Current ratio 2016 2017 2018
Marks and Spencer 0.69 0.73 0.72
Tesco 0.75 0.79 0.71
Sainsbury 0.66 0.74 0.76
Marks and Spencer Tesco Sainsbury
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
3.86
0.25
2
1.1
-0.07
1.44
0.24
2.1
1.09
2016
2017
2018

From the above table and graph which show the information about the company liquidity
position on the basis of the current ratio analysis. It can be interpreted that the financial health of
the company is not good because the ratio shows that the current assets are not able to meet the
current liabilities of the company. It shows that the current ratio of Marks and Spencer is
fluctuating because it is fluctuating over the years. The ideal current ratio is 2 : 1 which shows
that the company have double current assets than its liabilities. The current ratio for Sainsbury is
improving over the years which means the liquidity position of Sainsbury is improving which is
beneficial for the financial performance of the firm.
Debt/ equity ratio 2016 2017 2018
Marks and Spencer 0.85 0.88 0.94
Tesco 1.80 3.11 1.45
Sainsbury 0.61 0.62 0.58
Marks and Spencer Tesco Sainsbury
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.69
0.75
0.66
0.73
0.79
0.74
0.72 0.71
0.76
2016
2017
2018

From the above It can be interpreted about the liquidity positions of the firm on the basis
of the debt - equity ratio which is calculated to determine the ability of the equity capital to pay
off the debts of the firm in order to improve the financial health of the firm. It shows the ability
of the equity tom pay of the debts. Lower the debt's equity ratio is better for the company. It is
identified that the debt equity ratio is increasing over the years which means the company debts
are increasing which is not beneficial for the financial performance of the Marks and Spencer.
Sainsbury have better financial health than that of Marks and Spencer and Tesco as it is showing
the lower debt equity ratio.
Fixed assets turnover ratio 2016 2017 2018
Marks and Spencer 2.10 2.20 2.43
Tesco 1.87 1.84 1.85
Sainsbury 1.88 1.95 2.01
Marks and Spencer Tesco Sainsbury
0
0.5
1
1.5
2
2.5
3
3.5
0.85
1.8
0.61
0.88
3.11
0.62
0.94
1.45
0.58
2016
2017
2018

From the above it can be interpreted about the efficiency ratio which shows the efficiency
of the fixed assets to enhance the sales of the organisation. It provides understanding that the
fixed assets are used in efficient manner to derive better result for the company. High turnover
ratio which means the company is using its fixed assets in efficient and effective manner to
derive better result (Abdel-Maksoud and et.al., 2015). Marks and Spencer is using the fixed
assets in better way as shown by the ratio analysis which means the company is performing
better than that of its competitors Tesco and Sainsbury.
Evaluation of financial performance
Ratio analysis is used to determine the financial performance of the company it assists in
identifying the profitability and the financial health of the company which assist in managing the
performance in better way by identifying the areas due to which the performance and
profitability of the firm is affected. It is evaluated that Marks and Spencer is having higher
profitability than that of its competitors Tesco and Sainsbury (Arnaboldi, Lapsley and Steccolini,
2015). Moreover, the financial health of the company is not good as shown by the current ratio,
debts equity ratio and quick ratio. It shows that the firm liquidity position is not good as compare
to its competitors. Moreover, the inventory turnover ratio shows the usage of inventory in the
Marks and Spencer Tesco Sainsbury
0
0.5
1
1.5
2
2.5
3
2.1
1.87 1.88
2.2
1.84 1.95
2.43
1.85
2.01
2016
2017
2018

efficient way to increase the sales of the company which shows that Marks and Spencer is having
good inventory turnover ratio than compare to its competitors Tesco and Sainsbury. Moreover,
earning per share provide information about the earning on the share issues which is decreasing
over the years for Marks and Spencer whereas Tesco have earned the highest earning in the year
2018 as compared to Marks and Spencer and Sainsbury (Bititci, Cocca and Ates, 2016). So,
overall Marks and Spencer profitability is good but the liquidity position is not good so, it is
required that the firm should improve the current ration by increasing their current assets which
assist in meeting their obligations. The financial performance of Marks and Spencer shows that
the profitability of the firm is satisfactory but the financial health for the organisation is not good
which may affect the firm performance.
QUESTION 2
Kaplan and Norton’s Balanced Scorecard as a Strategic Management System
Balance scorecard is a strategic performance measurement tool which help in measuring
the performance for the growth and success of Organisation. This model was developed by
Robert Kaplan and David Nortan. It is used as a financial measure tool which provide
understanding about the performance of the company and the way the firm is able to meet the
performance goals.
According to Burtonshaw-Gunn (2017), Balance scorecard is the strategic management
tool which assist in measuring the performance of the organisation and identifying the deviation
by setting the performance goals which help in the improvement of the performance of the
organisation. Balance Scorecard measure the performance on the basis of the standards set to
meet the variation by formulating various strategies through which the firm is able to improve its
performance. It identifies the organisation performance from different perspective of the
organisation which consist of financial, customer, business and production, learning and growth
perspective. The perspective provided by balance scorecard assist in measuring the financial
performance of the firm which assist in improving the performance and profitability of the
organisation. However on the critical note Feng and Wang (2016) stated, Balance scorecard
framework is successful if the information provided is useful. If the information regarding the
organisation performance is not accurate or incomplete it will be difficult to derive result for the
organisation by development of balance scorecard for performance measurement.

In the views of Feng and et.al. (2016), balance scorecard help the company in improving
their performance by providing the firm with clear picture of their operations. It helps the
organisation in monitoring the performance of employees and creating the action plan for
monitoring the financial performance of the company. It assists in financial growth and
profitability of the business which is good for the success of business. With the help of this
strategic management tool the firm is able to gain more customer base and market share and can
also provide various job benefits to the employees by earning more profit. This tool is useful for
achieving the goals and objectives of the firm in effective and efficient manner. It assists in
controlling the expenses of the firm which help in increasing the income for the period which in
turn will improve the operational efficiency of the organisation. On the critical note Lucas and
Noordewier (2016) stated that, Balance scorecard is ineffective if the employees of the
organisation resist from implementing the balance scorecard in the organisation due to which the
organisation will not be able to successfully achieve its performance goals. Employees may
resist because it requires time and training for understanding the functioning of balance
scorecard. It requires time form learning about the balance scorecard due to which many
employees of the organization will resist doe the implementation of this tool the organisation.
As per O'Donohue and Torugsa (2016), balance scorecard provide information about the
performance from the financial perspective which is related to the financial performance of the
organisation for creating value for the shareholders. It provides understanding that the operation
and strategies of the organisation add value for the shareholders or not. Financial perspective
provide information about the financial aspect of the company in order to increase the
profitability of the firm which in turn will assist in improving the performance of the
organisation and will help in the growth and success of the firm. On the contrary Parvadavardini,
Vivek and Devadasan (2016) stated that, balance scorecard requires the information about the
financial aspect of the organisation for measuring the performance of the firm on the basis of the
financial information but if the financial information provided is incomplete than the balance
scorecard is not able to work in effective manner and thus the accurate result are derived.
Moreover, there are other perspective which consist of customer perspective, business and
internal process perspective and learning and growth perspective which assist in improving the
performance of the firm different aspect to attract more customers towards the firm and provide
them satisfaction by meeting their demands. Also, it provides understanding about the ways

through which the firm is able to create value for the customers in order to attract more investors
towards the firm. In addition to this, It also assists in improving the performance of the
employees by providing them motivation and job satisfaction which in turn will help the firm in
retaining the employees for the long and reducing the staff turnover which will assist in
enhancing the brand image of the organisation.
In the views of Post and Byron (2015), Balance scorecard help the firm in measuring
their performance from various perspective in order to improve the overall performance of the
firm to have strong brand image in the market and attract many customers towards the products
and services offered by organisation. Balance score card is beneficial for the company as it
provide direction top the firm through which the firm is bale to achieve their goals and
objectives. In the organisation key performance indicator help the firm in measuring their
performance which assist in achieving their targeted goals. By developing balance scorecard the
organisation will be able to improve their performance and profitability and the financial health
for the firm will be improved which is good for the organisation and success. On the contrary
Wang, Dou and Jia (2016) stated that, balance scorecard required more cost and time for their
implementation due to which the other operation so the firm may get affected. It increases the
cost of the organisation because balance scorecard increases the expense of the firm for their
implementation.
Application of balance scorecard to Marks and Spencer
Balance scorecard is applicable for Marks and Spencer because if this organisation uses
the balance scorecard tool which is the strategic management tool than the firm will be able to
gain competitive advantage by measuring the performance according the standard performance
goals and can identify the variation in the performance which in turn will lead to improved
performance of the organisation. Marks and Spencer can develop balance score card which will
provide understanding about the performance and the variation existing in their performance due
to which the organisation growth and success is affected. Marks and Spencer by applying this
concept for the measurement of their performance will be able to achieve its performance goals.
Balance scorecard is a time consuming process but it will help in measuring the performance and
formulating various strategies formulating the higher performance for the achievement of their
goals and objectives. With the help of balance scorecard Marks and Spencer will be able to meet
the goals and objectives which will help in providing motivation to the employees. The balance

scorecard provide understanding about the company's performance based on the financial,
customer, business and production and learning and growth perspective. Organisation by
following the customer perspective is able to identify if the firm is performing as the customers
demand that is if the organisation is able to meet the customers expectation or not. The business
and production process perspective focus on improving the internal process of the firm which
will help in controlling the internal process to derive effective result for the growth and success
of the organisation. Another perspective covered by balance scorecard is learning and growth
perspective which focus on the potential future performance. In this, management of Marks and
Spencer can set the performance goals to measure the actual performance of the organisation
which will assist in identifying the variation in the performance in order to formulate the
strategies which assist in reducing this performance gaps.
So, it is understood that Marks and Spencer by implementing the balance scorecard in
their organisation will be able to measure their performance on the basis of which the firm will
be able to formulate the strategies to improve their performance by setting the performance
goals. It is identified that balance scorecard help the organisation in achieving their performance
goals by identifying the variation due to which the performance is lacking to reduce those
performance gaps. Balance scorecard help the firm achieving their targeted goals and objectives
by measuring their performance with the help of key performance indicators. With the help of
balance scorecard the organisation can formulate the strategies which will assist in improving
their performance.
QUESTION 3
Proposed balance scorecard for Marks and Spencer
Marks and Spencer is involved in the retail industry and provide clothing and other
products to the customers. With the help of balance scorecard it will be able to measure its
performance which will assist in improving their performance (Balanced Score Card: Concept,
Advantages and Limitations, 2018). The balance scorecard is prepared to achieve the targeted
goals and objectives of the firm by taking initiatives against the objectives set and following the
KPI to measure the performance and identify the variances. The balance scorecard prepared for
Marks and Spencer will assist in improving its performance. With the help of balance scorecard
the firm is able to achieve its targeted goals and objectives.
BALANCE SCORECARD FOR MARKS AND SPENCER

Perspective Objectives targets Initiative
Financial Improve financial
performance and
reducing the cost or
expenses of the
firm. To grow the
revenue for the firm
Increase revenue by
20%
Using key performance
indicators such as preparing
budgets, measuring ROI and
operating margin to improve
the financial performance of
the firm.
Customer to provide products
and services as per
the demand of
customers and
market trend to
enhance the
customer's
satisfaction to retain
them in business for
long run
Increase sales by
10% per quarter.
Increase customer
by 20% every year
Introducing customer loyalty
programmes. The key
performance indicators which
can be used are customer
portfolio margin for customer,
customer satisfaction level etc.
Internal business
process
Increase the quality
of products and
services and
improving the
operational
efficiency of the
organisation.
Implementing
effective internal
controls in the
organisation.
Moreover,
Increasing the
quality of products
and services by
20% per year
Increasing the product
portfolio and introduction of
new quality indicators. KPI
which can assist in measuring
the performance include
product quality, delivery,
service etc.
learning and growth Increase staff
satisfaction and
reducing the staff
Improving the
performance by
increasing the
Initiative which can be taken
by Marks and Spencer is to
motivate the employees and

turnover. Moreover,
Increasing
communication in
the organisation
and increasing
research and
development.
success factor with
20% per year.
optimize R&D. The KPI which
can be used for this
perspective are R& D
investment, training, staff
satisfaction, feedback, rate of
turnover.
Critical success factors
Critical success factor of the organisation assist in improving the performance of the firm.
It provides direction to the ways to achieve their targeted goals and objectives. Marks and
Spencer critical factor will lead the firm to improve their performance by measuring them
through the KPI. Marks and Spencer can improve its financial performance by increasing its
profit margin which will assist in creating value for the shareholders and will attract more
investors toward the firm which is beneficial for the growth and success of the organisation.
Balance scorecard is the effective tool to measure the performance of the organisation.
Perspective Critical success factor
Financial perspective  Increase in market share
 Increase in profit margin
 Creating value for the shareholders
Customer perspective  New customers
 Increase customer satisfaction
 Retaining customers for the long run by
meet their expectation
Internal business perspective  Providing more offers
 Increase the quality of products and
services

 Improving the internal controls
 Improving integration process
learning and growth perspective  Increasing skill sand knowledge of
employees.
 Research and development
 Increasing communication
 staff turnover
CONCLUSION
From the above assignment it has concluded about financial performance management
which is related to management of the financial performance of the organisation for the growth
and success of the firm. Financial performance of the firm is determined through the help of ratio
analysis which provide better understanding about the performance and profitability of the
organisation. In this assignment, It has included Marks and Spencer which is involved in the
retail industry ton analyse their financial performance by comparing it with its competitors Tesco
and Sainsbury to gather information about the financial performance of the firm. Furthermore, It
has identified that Marks and Spencer have good profitability as compared to its competitors but
the liquidity position of the organisation is not satisfactory as shown by the current ratio and
other financial ratios. Moreover, it has involved the discussion on the balance scorecard which is
the performance measurement tools and has also developed the balance scorecard for marks and
Spencer for measuring their performance.

REFERENCES
Books and journals
Abdel-Maksoud, A. and et.al., 2015. The use of non-financial performance indicators and
organisational performance: an empirical analysis of Italian firms. International
Journal of Business Performance Management. 16(4). pp.421-441.
Arnaboldi, M., Lapsley, I. and Steccolini, I., 2015. Performance management in the public
sector: The ultimate challenge. Financial Accountability & Management. 31(1). pp.1-
22.
Bititci, U., Cocca, P. and Ates, A., 2016. Impact of visual performance management systems on
the performance management practices of organisations. International Journal of
Production Research. 54(6). pp.1571-1593.
Burtonshaw-Gunn, S. A., 2017. Risk and financial management in construction. Routledge.
Feng, T. and Wang, D., 2016. The influence of environmental management systems on financial
performance: A moderated-mediation analysis. Journal of business ethics. 135(2).
pp.265-278.
Feng, T. and et.al., 2016. Environmental management systems and financial performance: The
joint effect of switching cost and competitive intensity. Journal of cleaner production.
113. pp.781-791.
Lucas, M. T. and Noordewier, T. G., 2016. Environmental management practices and firm
financial performance: The moderating effect of industry pollution-related
factors. International Journal of Production Economics. 175. pp.24-34.
O'Donohue, W. and Torugsa, N., 2016. The moderating effect of ‘green’HRM on the association
between proactive environmental management and financial performance in small
firms. The International Journal of Human Resource Management. 27(2). pp.239-261.
Parvadavardini, S., Vivek, N. and Devadasan, S. R., 2016. Impact of quality management
practices on quality performance and financial performance: evidence from Indian
manufacturing companies. Total Quality Management & Business Excellence. 27(5-6).
pp.507-530.
Post, C. and Byron, K., 2015. Women on boards and firm financial performance: A meta-
analysis. Academy of Management Journal. 58(5). pp.1546-1571.