Question
Company A manufactures large equipment designated to electric power plant. It employs about 9000 people and has about 1.6 billion euros revenue. Major cash difficulties
Company A manufactures large equipment designated to electric power plant. It employs about 9000 people and has about 1.6 billion euros revenue.
Major cash difficulties are anticipated soon, since the Company must finance an important investment program linked to the security of its facilities. A new Executive Committee has been recently appointed. Despite a satisfactory level of profitability, the shareholders blamed the previous ExCom members for their rather lax cash management.
To encourage managers to improve the cash situation, the ExCom has implemented new key performance indicators.
In the past, the managers performance was assessed from the net operating income NOI (The variable part of their remuneration was based on NOI).
Henceforth, the performance managers assessment will be based on the following indicators:
- EBITDA
- Operating working capital
- Operating cash flow
The top Directors performance will also be assessed from Group indicators:
- Net Cash flow from operations
- Evolution of the group net debt
Work to be done:
- What do you think of performance indicators implemented by the ExCom, considering the Companys situation?
- What is your opinion about the advantages and drawbacks of these indicators and in particular EBITDA?
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