Driving Economic Performance in Australia’s Mid-Sized Market

Australia’s mid-sized enterprise (MSE) market is often referred to as the “engine room of the nation’s economy”, employing nearly a quarter of all Australians and responsible for almost 40 per cent of Australia’s business revenue. They are generally organisations with 20-200 employees with revenues ranging between $30-300 million. MSEs are dynamic, agile and entrepreneurial than their large company counterparts and are typically unlisted and investor led. This article looks at how MSEs can further enhance their already growth-focussed outlook and measure performance through a clearer lens that metrics such as Economic Profit (EP) provide.

Measuring Business Performance

Businesses can vary greatly in both their discipline to measure performance and the selection of metrics they use. Revenue, EBIT, utilisation rates or defect rates are all typical metrics of interest to executive management teams, but they deal only with specific aspects of the business. These metrics rarely measure the true objective of the company and none can be used in isolation as they only provide part of the performance story. Economic Profit (EP) is a single metric that holistically measures business performance. While other metrics deal with specific aspects of value drivers, EP is a measure of the cumulative impact of strategic decisions. EP measures performance by taking company earnings (NPAT) and subtracting the cost of the capital deployed in the business (Total Assets x WACC). While a commonly used principle in larger enterprises, EP is less commonly used by smaller firms.