As discussed section 3.1.1, these two supporting drivers are the key determinants for increasing ROI and hence shareholder value. An understanding of the financial ratios that affect these two drivers is essential when formulating an organisation’s supply chain strategy. While financial ratios are based on historical information, and therefore have limitations, they have a number of advantages for an organisation. They can be:
a benchmark for comparing one organisation with another;
used as a comparator for a particular industrial sector;
used to track past performance;
a motivator for setting performance targets;
an early warning indicator if the organisation’s performance starts to decline.