How do we balance and structure the financial funding options, resources and risks of the business?
The Balance Sheet decision area balances the financial structure and resources of the business for better performance. A higher debt-to-equity ratio means higher rewards. It also means greater risk. If operating profits fall, this may jeopardize the company’s ability to deliver on interest and debt repayments. Capital employed—working capital plus fixed assets—and return on capital employed (ROCE) are also critical factors that influence lenders and shareholders. ROCE reflects how well the business can convert investment into profit. Investors perceive an intensive and high-capital-employed industry to be risky. With the Balance Sheet decision area, you can set planning goals and scorecarding metrics for performance management elements such as: • Capital employed and ROCE ($ and %). • Debt to equity ratio (%). • Assets and fixed assets ($). • Debt and liabilities ($). • Equity ($). • Market value ($).
