Page 71 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 2. Performance Measurements and Standards 57

• Market capitalization This is the total number of shares of common stock out-
standing multiplied by the price of the stock. Thus, in the example, with 15,250,000
shares (Table 2-1) outstanding and the fair market value of each share worth $10,
market capitalization would be $152,500,000.
• Market share This is own total sales divided by the estimated total dollar value of
all sales for similar products/services in the marketplace. If the marketplace for the
products is estimated to be $500 million, then in the example with sales of
$101,546,400 (Table 2-1), this would represent a 20.3 percent market share
($101,546,400 divided by $500,000,000). It can also be calculated by organizational
units of the company having sales.
• Net assets These are total assets minus current liabilities. In the example, this is
$330,997,900 (Table 2-6) minus $23,683,100 (Table 2-7), or $307,314,800. This is
equal to noncurrent liabilities of $170,237,400 (Table 2-7) plus equity of $137,077,400
(Table 2-7).
• Net current assets This is current assets minus current liabilities. In the example,
this is $79,301,500 (Table 2-6) minus $23,683,100 (Table 2-7), or $55,618,400.
• Net earnings (or net income) This is income after all expenses have been deducted.
Because of the high visibility of this net-net, it is used for many of the traditional
“return” formulas. In Table 2-1, this is $9,658,800. It is best used as a company-wide
indicator due to a number of expenses that are not easily identified as division-specific.
It is also commonly referred to as the “bottom line.”
• Net earnings growth This corporate measurement is also called net income growth.
This is the increase in dollars and/or percent over the previous financial period. If the
net income for the previous period were $8,749,620, then compared with $9,658,800
(Table 2-1), the dollar increase would be $909,180, or 10.4 percent. See Revenue
growth.

• Net earnings to sales ratio This is income after taxes divided by, net sales. In the
example, this is $9,658,800 (Table 2-1) divided by $101,546,400 (Table 2-1), indicat-
ing that the company retained (before dividends) a ratio of 0.095 to 1 on every dollar
of sale

• Net income See Net earnings.
• Net income to shareholder equity ratio This is net income divided by sharehold-
er equity. In the example, this is $9,658,800 (Table 2-1) divided by $137,077,400
(Table 2-8), indicating that net income is a ratio of 0.07 to 1 of shareholder equity.
• Net profit on sales This is net income divided by net sales. In the example, this is
$9,658,800 (Table 2-1) divided by $101,546,400 (Table 2-1), indicating that net prof-
it (net income) is 9.5 percent of net sales.

• Net sales This is gross sales less returns, allowances, and discounts. In the example,
this is $101,546,400 (Table 2-1).

• Net worth See Shareholder equity.