ABSTRACT
This chapter shows the case where managers and commentators are moved to employ a higher level of analytical sophistication through the use of several performance criteria. Tracking changes in the values of ratios over time, or comparing ratios for several plants in the same industry, provides managers with an analytical framework for constructing hypotheses about the causes for decline or improvement in a corporate performance, so that lessons can then be learnt for future activities. If pushed hard to choose only one single criterion, the expectation is that most managers and analysts will probably agree on Return On Capital Employed as the ultimate measure of corporate performance, in that it highlights the financial outcome against the total financial resources employed by the company. The net margin is an acknowledged measure that reflects overall performance, whereas the gross margin is popular in certain industries, for example in retail and distribution, for pricing and measuring the profitability of individual products.
