Strategic Marketing: Planning and Control, Third Edition

vehicles and long-term investments. (ii) Current assets– items that are
readily convertible into cash or cash itself. Such assets are to be used in
the short term. Examples included: stock, cash and debtors (those
owning us money).
● Liabilities: Financial obligations owed to others. Current liabilitiesare
those debts which must be paid in the near future. Therefore cash will
be required to meet current liabilities. Additionally, capitalinvested by
the owner can be classified as a liability as it is technically owed to the
owners.

Ratios

A simple and effective control technique is to express performance in
terms of ratios. Ratios should not be used in isolation. Trends and compari-
sons with planned or standards ratios should be considered. Remember,
they are no more than indicators and rarely identify the source of a prob-
lem. However, managers can identify key ratios for their areas of respon-
sibility. These ratios provide a quick and effective way to establish
performance and highlight areas warranting more detailed analysis.
Figure 14.6 outlines the uses of ratios.

Control 281

Ratio Analysis

Use Application

●Trend analysis ●Profitability

●Comparison ●Liquidity

●Highlight Key Areas ●Debt

●Activity

Figure 14.6

Use and application

of ratios

Ratios represent a snap shot of the firm’s financial/productivity pos-
ition and fall into four general categories (see Figure 14.6): profitability,
liquidity, debt and activity. Remember, when calculating ratios it is import-
ant to be consistent with the terms used. For example, how is profit
defined – before or after tax?

Profitability ratios
Here, effectiveness is measured by evaluating the organisation’s ability to
produce profit. Profit margin is expressed in terms of a ratio of profit to
sales. The profit margin is a key trading concern. Clearly, the profit margin
can be enhanced by raising selling price and/or reducing costs.