Business – 2.3 Management – Management and managers | e-Consult
2.3 Management – Management and managers (1 questions)
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Managers monitor financial performance indicators to assess the health of the business and to guide strategic decisions. Three key indicators are:
- Profit margin – shows the proportion of revenue that remains as profit after all expenses. A falling margin may prompt managers to review cost structures, renegotiate supplier contracts or adjust pricing.
- Return on capital employed (ROCE) – measures how efficiently a company generates profit from its capital. Low ROCE can lead managers to re‑allocate capital to higher‑yield projects or divest under‑performing assets.
- Cash conversion cycle (CCC) – indicates the time taken to convert investments in inventory and receivables into cash. A long CCC may cause managers to tighten credit terms, improve inventory management, or negotiate better payment terms with suppliers.
By regularly analysing these indicators, managers can identify problem areas, set performance targets, and implement corrective actions that enhance overall business performance.