Performance Measures

To: George Harris, Triangle Paper Division

From: Marie Fortner, Ink Industries

Subject: Divisional Performance

The operating results for the fourth quarter and for our fiscal year ended on April 30 are now complete. Your fourth quarter return on gross assets was only 9 percent, resulting in a return for the year of slightly under 11 percent. I recall discussing your low return after the first quarter and reminding you after the second and third quarters that this level of return is not considered adequate for the Triangle Paper Division.

The return on gross assets at Triangle has ranged from 15 to 18 percent for the past five years. An 11 percent return may be acceptable at some of Ink's other divisions, but not at a proven winner like Triangle, especially in light of your recently improved facility. Please arrange to meet with me in the near future to discuss ways to restore Triangle's return on gross assets to its form level.

Harris is looking forward to meeting with Fortner as he plans to pursue the discussion about the appropriateness of ROA as a performance measure for Triangle. While the ROA for Triangle is below historical levels, the divisions profits for the year are higher than at any previous time. Harris is going to recommend that ROA be replaced with multiple criteria for evaluating performancenamely, dollar profit, receivable turnover, and inventory turnover.

Required:

1. Identify general criteria that should be used in selecting performance measures to evaluate operating managers.
2. Describe the probable cause of the decline in the Triangle Paper Divisions return on gross assets during the fiscal year ended April 30, 2020.
3. On the basis of the relationship between Fortner and Harris, as well as the memorandum from Fortner, discuss apparent weaknesses in the performance evaluation process at Ink Industries.
4. Discuss whether the multiple performance evaluation criteria that Harris suggested would be appropriate for the evaluation of the Triangle Paper Division.
5. To receive full credit, respond to the postings of at least two of your fellow students with a thoughtful, meaningful comment.