Page 75 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 2. Performance Measurements and Standards 61

increase is greater than that of net earnings growth, it could mean expenses are
increasing faster than sales (often the indication of an expanding business with high
marketing and developing costs holding down earnings). If the percentage is lower
than net earnings percentage growth, it may mean a shrinking future even though
expenses are apparently being controlled. See Net earnings growth.
• Run rate This is the percentage of shares granted annually under option (or award)
as a percentage of the total shares outstanding. In Table 2-9, if only 100,000 shares
were optioned annually, this would be 0.7 percent of the 15,250,000 shares outstand-
ing. Percentages of approximately 1 percent are not uncommon.

• Sales-to-cash ratio This is sales divided by cash. In the example, this is
$101,546,400 (Table 2-1) divided by $18,738,200 (Table 2-6), reflecting a ratio of 5.4
sales to 1 of cash.
• Sales-to-inventory ratio This is sales divided by inventory. In the example, this is
$101,546,400 (Table 2-1) divided by $14,095,300, (Table 2-6), reflecting a ratio of 7.2
sales to 1 of inventory.
• Sales per employee Sales divided by the number of employees in the unit is some-
times used as a measurement of people-intensive organizations.
• Shareholder equity This is what is left after all liabilities have been subtracted from
assets. In Table 2-8, this is $137,077,400. It hypothetically is what the shareholders
would receive after all debts were paid. Shareholder equity is often called the book
value, or breakup value, of the company—a term well known to corporate raiders who
purchase controlling interest in a company because the breakup value is in excess of
market capitalization (i.e., product of number of shares times the price per share of
stock).
• Shareholder equity to sales ratio See Investor capital to sales ratio.

• Shareholder equity to total liabilities ratio See Investor capital to total liabilities
ratio.
• Shareholder value increase (SVI) This is stock price plus the dividend (typically
the value of such dividend reinvested in the stock at the time paid) less the price of the
stock at the beginning of the year. If the stock price were $9 at the beginning of the
year and $10 at year end, with 46¢ paid in dividends during the year, the SVI would
be $1.46 ($10 $9 $0.46), or 16.2 percent ($1 46¢ $9). Recognize that stock
price is affected by factors outside management control.
• Shares authorized This is the total number of shares of common stock authorized
by the shareholders for use by the company. Within this overall total (which is 30 mil-
lion shares in Table 2-9), there is a total number of shares approved by the sharehold-
ers for use in the stock plan (options and awards) for executives and others. In Table
2-9, this is 1,500,000 shares.

• Shares available for use This is the total number of shares approved for use less
the number of shares exercised and not exercised (excluding the number forfeited). In
Table 2-9, this is 600,000 shares (i.e., 1,500,000 shares less 900,000 shares).