Managerial Effectiveness

Managerial Effectiveness

Gregory Bourque

Averett University

Management Strategy

BSA444

Dr. Michael Jernigan

October 02, 2011

Managerial Effectiveness

At the end of the day, the bottom line reflects the ability of the management team to achieve the benchmarks for profitability according to the business model agreed on by executives and shareholders. To achieve goals daily, through a daunting parade of systems and procedures becomes complex and challenging process. Executives and shareholders use Return on Assets, and Return on Equity to ascertain the big picture of a company. (McClure, 2010)

Return on Assets, is an indicator of how profitable a company is relative to its total assets. This metric illustrates how effective management is using company assets to generate earnings. Company assets are comprised of debt and equity. Both assets fund the operations of the company. This shows shareholders how the company is converting the money is has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment. Management’s most important job is to make wise choices in allocating its resources. Systematically improving processes and increasing profits is paramount. The formula for Return on Assets is net income divided by total assets. (McClure, 2010)

The chart below reflects Apples achievement with ROA from 2008 to 2010.

Return on Equity is the amount of net income returned as a percentage of shareholders equity. ROE measures a company’s profitability revealing how much profit it generates with money shareholders have invested. The higher the number, the more efficient management is in utilizing its equity base and the better return is to investors. It turns out that a company will not grow earnings faster than the current ROE without raising additional cash. In effect, ROE represent a firm’s growth rate, which is why investors rely on this metric to gauge growth potential. The formula for ROE...