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Explain the difference between a lag indicator and a lead indicator.

Short Answer

Expert verified

Answer

A lag indicator measures past performance while a lead indicator forecasts future performance.

Step by step solution

01

Meaning of Lag indicator

For instance, the frequency of accidents on a construction site is a lagging safety indicator. Lagging indicators are output measurements in this case.

02

Difference between a lag indicator and a lead indicator

The distinction between the two is that a leading indicator may affect change, but a trailing indicator can only reflect what has already occurred.

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Most popular questions from this chapter

What is a responsibility center?

XTreme Sports Company makes snowboards, downhill skis, cross-country skis, skateboards, surfboards, and inline skates. The company has found it beneficial to split operations into two divisions based on the climate required for the sport: Snow Sports and Non-snow Sports. The following divisional information is available for the past year:

Net Sales Revenue

Operating Income

Average Total Assets

ROI

Snow Sports

\(5,500,000

\)990,000

$4,100,000

24.1%

Non-snow Sports

8,500,000

1,530,000

6,100,000

25.1%

XTremeโ€™s management has specified a 13% target rate of return. Calculate each divisionโ€™s profit margin ratio.

Interpret your results.

What are the goals of a performance evaluation system?

List the disadvantages of decentralization.

Zims, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:

Net Sales Revenue Operating Income Average Total Assets

Residential \( 550,000 \) 65,280 $ 192,000

Professional 1,090,000 164,820 402,000

Management has a 26% target rate of return for each division.

Requirements

1. Calculate each divisionโ€™s ROI. Round all of your answers to four decimal places.

2. Calculate each divisionโ€™s profit margin ratio. Interpret your results.

3. Calculate each divisionโ€™s asset turnover ratio. Interpret your results.

4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?

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