A methodology for analysis of corporate performance

Analysis of corporate performance is an essential exercise for strategic management of an industrial enterprise. The analysis consists of two areas: the first is that of diagnosis, which aims at providing an understanding of how the enterprise works and an explanation of changes that have taken place in its past performance; the second is that of planning, with the purpose of determining future courses of action and ascertaining their implications in terms of improved performance. The methodology described in this paper uses incremental calculus and, instead of being solely concerned with absolute measures, it largely focuses on relative changes in performance. This approach stems from two reasons: first, it is relative changes (usually expressed in percentage terms) that managers are mainly preoccupied with, and secondly the methodology involves the use of non-dimensionless variables and relationships, which allow general results to be derived. A further feature of corporate performance is that it is rarely measured by a single criterion but is evaluated by a series of ratios, and it is therefore important to determine how changing operating conditions, or changes in the external environment, affect the criteria chosen for scrutiny, and how these criteria affect each other.