The Measurement of Firm Performances Dimensions

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745 words
Sewanee University of the South
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Case study
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Research to determine which models should be retained and which ones to drop

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General Motors bankruptcy is one of the most horrific stories of a fallen corporation. GM, which is among the biggest companies in the United States of America went down following one of the worst economic downturns which happened in the year 2008 after the great depression. The company experienced a drastic fall in car sales, and in turn made losses worth billions. With the help of government intervention, the company was able to successfully implement a restructuring strategy (EPA. Gov, 2010). Its fortunes have since changed, and it is back in its profit-making ways. As part of its restructuring, the company reduced the number of brands it sells. It dropped some models while retaining others.

If I were researching to determine the models which the company should retain and which ones it should drop, I would have followed certain indicators before making the decisions. First, I would check the company's sales records for the past couple of years. I would be interested in knowing some sales for each model to note the models that have low sales and which once have high sales. I would then find out the production costs for each model. Further, I would find any relevant information regarding the target market, including prospects of each market and models. For models that have a high production cost and a relatively low amount of sales, I would advise the company to drop them. This is because these models play a great role in reducing the company's sales and profitability (EPA. Gov, 2010). If a product has a high production cost, it means that the profit margin is low. There are models whose production cost could be high but the sales are high. For the short run, I would advise the company to retain such models. I would also advise it to retain models that have a significant profit margin despite low sales.

What to measure and the type of measurement scale

To measure the performance, the measures I would use include financial indicators, Return on Equity (ROE) and financial ratios. Financial indicators include factors such as operations, customers, markets, and products. Under operations, the idea would measure the extent to which the company has achieved its sales volume target. These will indicate which models are registering high or low sales and profitability. Customers satisfaction will be the other measures that could be determined through feedback (Al-Matari, Al-Swidi & Fadzil, 2014). The company will know which models are satisfying to the customers and retain them. The measure of particular areas of activities in the market, which are subsequent determinants of profitability, will be the other measures. Finally, under financial indicators, the product quality will be measured through returns and warranty claims. If the returns and warranty claims are high, it is an indicator that the quality is poor, but if they are low, it is an indicator that the quality is good.

Return on Equity is the other measure that should be used to determine which models should be dropped. For those that have a high return on equity, they should be retained. This is because such models have a high profitability (Neely, 2002). Finally, it would be essential to measure certain financial ratios. These are ratios that can help determine the general performance of companies. Among the ratios that should be measured include liquidity, solvency, profitability and efficiency ratio. Liquidity ratio measures that ability of the company to pay short-term bills. Solvency ratio is a measure of companys debt in relation to its equity and assets (Al-Matari, Al-Swidi & Fadzil, 2014). Profitability ratio will be used to measure its ability to convert investment amounts to profits. Finally, the efficiency ratio measures the ability of the company to convert its stock into sales. Models with high-efficiency ratio will be retained.


Al-Matari E. M., Al-Swidi A. K. & Fadzil F. H. (2014). The Measurement of Firm Performances Dimensions. Asian Journal of Finance & Accounting. 6(1): 24-49 Retrieved online <> March 31, 2017

EPA. Gov (2010). Case Summary: 2010 MLC (General Motors) Bankruptcy Settlement. The United States Environment Protection Agency. Retrieved online <> March 31, 2017

Neely A (2002). Business performance measurement; Theory and practice. U.K. University Press, Cambridge. Retrieved from <> March 31, 2017

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