Performance Measurement in Internet Companies

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Introduction Over the last years commercial operations based on the Web have established as a crucial factor for doing business. Precondition for analyzing the performance of internet companies is the understanding that internet business models distinguish extensively from classic ones. The definition of an internet company depends on the level of digitalization concerning processes, products and intermediates (Choi/Whinston/Stahl 1997). These differences in business models are also reflected in the asset structure of the balance sheet (Means/Schneider 2000), where the usually dominating fixed assets and inventories of industrial companies are replaced by liquid resources, securities, intangibles and goodwill. Whereas industry and retail companies focus on the optimization of non-financial-assets and its related performance indicator Return on Capital Employed (ROCE), internet companies might fail by controlling their business based on these measures. Purpose The present paper focuses on the application of diverse Key-Performance-Indicators and related major value drivers for internet companies, analyzing the correlation of these KPIs with their related market values. Methodology The analysis of this paper is based on financial statements of a sample of 20 internet companies (e.g. eBay, Google, Yahoo !, Amazon, Apple,…), covering the periods from 2006 until 2010. The research question for use of adequate KPIs in internet companies and its correlation with market value is answered by means of secondary research, in particular conducting a correlation analysis by Pearson between market value and KPIs revenue, Return on Sales, Cash-Flow, ROCE and Return on Assets (ROA). Findings In consequence of the atypical balance sheet structure the analysis shows that the Return on Capital Employed (ROCE) is an insufficient KPI for internet companies. The correlation analysis between ROCE and market value supports this finding, resulting in a non-significant Correlation Coefficient (CC) of 0.39. Furthermore the study shows that other KPIs like revenue, EBIT ratio, Cash Flow and Return on Assets significantly correlate with market value. Taking the balance sheet structure into consideration as well, Return on Assets turns out to be a much more appropriate performance measure for internet companies.
Original languageEnglish
Title of host publicationProceedings of the 6th International Odysee Conference
Publication statusPublished - 2012
Event6th International Conference "An Enterprise Odyssey: Corporate Governance and Public Policy" - Sibenik, Croatia
Duration: 13 Jun 201216 Jun 2012


Conference6th International Conference "An Enterprise Odyssey: Corporate Governance and Public Policy"


  • Key Performance Indicators (KPI)
  • ROCE
  • Return on Assets
  • Value Drivers
  • Internet
  • RAVE concept


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