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Financial Management and Analysis of Projects : 4. Financial Management of Executing Agencies
4.4.3. Performance Indicators
4.4.3.1. The private sector in member
countries, in particular, has developed various performance measuring
devices to enable managements and stockholders to understand and/or
be assured as to the performance of enterprises. The use of a number
of these techniques is feasible in public sector enterprises, and,
of course, in private sector enterprises which are financed by ADB.
4.4.3.2. Performance measurement ratios
or indicators are an effective and concise means of transmitting financial
information, particularly when used to compare time-bound performances.
An inherent danger in the use of performance ratios and indicators
lies in the brevity of the descriptions used, and sometimes of the
information on which they are based.
4.4.3.3. These indicators are intended
to convey information quickly and succinctly, but users may be misinformed
unless they are provided with a clear understanding of the bases of
the data used to compile the indicators and of any changes that occur
to cause sudden fluctuations. As examples, the term "debt"
can mean all debt both long and short term, or only long-term debt;
or it can mean the historical value of foreign debt on its acquisition
at local currency conversion rates at the date of acquisition; or
it can mean the current value expressed in current US dollars etc.
4.4.3.4. A debt service coverage indicator
may change significantly if the structure of interest rates falls
sharply by reason of substitution of low interest-bearing debt for
high interest-bearing debt.
4.4.3.5. Ratios and indicators should
be displayed on a financial report or its tables in such a manner
that readers can quickly appreciate the significance of the information
and are left in no doubt as to the basis of the information used to
generate a ratio or indicator. This means that financial analysts
must include in their documents, particularly the financial projections,
and in the Project File, the assumptions used in compiling financial
ratios and indicators.
4.4.3.6. The guidance on specific indicators
provided in this section relates to specific indicators. It is provided
to assist staff in determining the most appropriate ratios and indicators
to use when measuring performance, including the most suitable methods
for their compilation and incorporation in financial covenants.
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4.4.2. Objectives of Measuring Performance | Next
4.4.4. Using Benchmarking Indicators |
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