The operational efficiency of an organisation is its ability to utilise the available resources to the maximum extent. Success or failure of a business in the economic sense is judged in relation to expectations, returns on invested capital and objectives of the business concern.
There are many techniques
available for evaluating financial as well as operational performance of a
firm. The two important techniques adopted in this study are:
1.
Turnover
to capital employed or return on investment (ROI)
Turnover To Capital Employed:
This is
the ratio of operating revenue to capital employed. This is one of the
important ratios to find out the efficiency with which the firms are utilising
their capital. It signifies the number of times the total capital employed was
turned into sales volumes. The term capital employed includes total assets
minus current liabilities. The ratio for calculating turnover to capital
employed (in percentage) is:
Operating Revenue
Turnover
To Capital Employed = --------------------------- X 100 Capital Employed
The
higher the ratio, the better is the position.
Financial Operations Ratio:
The
efficiency of the financial management of a firm is calculated through
financial operations ratio. This ratio is a calculating device of the cost and
the return of financial charges. This ratio signifies a relationship between
net profit after tax and operating profit. The formula for the computation of
this ratio is:
Net
Profit After Tax
Financial Operations Ratio = ---------------------------
X 100
Operating
Profit
Here, the
term “operating profit” means sales minus operating expenses. A higher ratio
indicates the better financial performance of the firm.