More financial measures that Nordstrom could consider for a balanced scorecard Essay
Overall, the fact that a variety of conclusions may arise over the six measures used by Nordstrom in the scorecard making it difficult to to entirely concur with the results or dismiss them as indicators of the company’s progress. All the measures included refer to financial performance and do not assess non-financial attributes of the company; hence, the scorecard is not balanced. Nevertheless, the measures that showed steady progress in the five-year period such as declines in SG & A expenses and rises in inventory turn indicate that Nordstrom is in a position to expand its operations in different capacities in future.
More financial measures that Nordstrom could consider for a balanced scorecard 1. Return on investment (ROI) ROI is an indicator of the rate of profit earned by a firm (McKeever, 2007). Nordstrom should consider the rate at which resources invested in various departments yields profit or results into loss as this would facilitate monitoring of the results on both short term and long-term basis. The percentage values obtained give a more precise position of the financial position than merely relying on gross profit. A well performing firm’s ROI should increase with time but this depends on the level of
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Current assets to current debt This ratio compares a firm’s current possessions such cash and the money owed by a company that is payable within one year (Neely, 2002). It is important to note that a firm should have more current assets than current debt in order to have a healthy cashflow (Neely, 2002). In Nordstrom’s case, the ratio of current assets to current debt would indicate if the company is financially stable or relies on short-term borrowing to finance in its operations. For a vibrant business, the ratio of current assets to current debt should increase over time as the organization acquires more finance.
Net profits on net sales Net profit on net sales refers to the real worth of profit earned by an organization. As discussed previously in this paper, Nordstrom used gross profit as its indicator of profitability (Figure 2). However, this does not represent the real value of profit since expenses are not accounted for. Net profit should increase with time for well-performing companies. Net profits on net working capital Working capital is the difference between current assets such as cash and current liabilities such as short-term debts (McKeever, 2007).
The net profit earned on working capital indicates the yield available on short-term capital. For an organization such as Nordstrom whose performance was vibrant in 2004, the net profits on net working capital should increase with time. Customer perspective measures 1. Sales per customer This refers to the total, values of sales divided by the number of customers (Berry, & Linoff, 2004). Nordstrom should consider this option because it shows the commitment and purchasing power of customers. Sales per customer would reveal the true picture of how customers shop as opposed to the conventional approach of relying on mass sales.
An increasing value of sales per customer in a company indicates vibrant performance. 2. Share of customer Share of customer strategies involve increasing the quantity of business that each customer does with a particular company (Berry, & Linoff, 2004). While Nordstrom has been instrumental in increasing the volume of sales, it should also deal with the customers at individual level as a promotional strategy. This would involve inter alia, door-to-door visits and distribution of instruction manuals on every purchase. These strategies should increase in order to win and maintain customers.