Professional Documents
Culture Documents
Faculty of Management
Business Management 3rd year
Financial Management
Ewelina Zarzycka, Ph.D.
Authors:
Piotr Bartenbach
Bartomiej Staszczyk
Dominik Wolski
a)
Health
centre
Op. Profit
($000)
ROI
Residual
income
EVA
Ayetown
Beetown
Ceetown
396
441
703
23.02%
13.96%
18.40%
180
33
187
42.13
-123.17
-29.97
(i)
EVA
RI
ROI
Assessing the performance of the health centres using ROI, we can see that the most
successful one was Ayetown with 23,02% ROI. However, ROI is not the best comparative
comparison tool and it does not tell us what the actual return (in numbers) was. In this case,
Ayetown achieved the highest ROI but they have also earned the lowest amount of money.
In terms of Residual income there are two Health centres that stands out - Ceetown (with
187 000) and Ayetown (with 180 000) of RI. The lowest performance was shown by Beetown
with only 33 000 of residual income.
Ayetown has the highest EVA among the three Health centres. It is worth mentioning that it
is also the only centre that has positive result in that measure.
(ii) 1)
Change in revenue
Revenue
2100000
Current situation
Op. profit
441000
ROI
13.96%
Our assumption was that variable costs are at the rate of: 567 000 / 2 100 000 = 27%. In
that case the revenue has to increase by 261645 (12,46%) and the VC will increase by: 0,27
* 261645 = 70644.
2)
Change in Total Costs
Current situation
Revenue
VC
Total costs
Op. Profit
ROI
2100000
567000
1659000
441000
13.96%
With change in Total costs
Revenue
VC
Total costs
Op. Profit
ROI
2100000
376000
1468000
632000
20.00%
Our assumption was that the change in Total costs will be cause only by
the change in Variable Costs (VC) so Fixed Costs remain the same. In order
to achieve growth in ROI, the costs have to drop. The required drop is 191
000 of VC (-33,69%) to 376 000. The Operating profit will because of this
increase to 632000.
3)
Change in Net Assets
Current situation
With change in Net assets
Op. profit
Net assets
ROI
Op. profit
Net assets
ROI
441000
3160000
13.96%
441000
2205000
20.00%
The level Net assets required to achieve ROI of 20% with the exacr same amount of
Operating profit (441 000) is measured: 441 000 / 0,2 = 2205000. The required drop in Net
assets is 955 000 (30,22%).
b)
Number of complaints may be a good indicator of level of quality of service given to the
customers. However, the total amount of complaints is misleading as it should be matched
up with the total number of served customers. Such calculation will give us information
about % of the complaints, which will be much more accurate and will provide more
information than pure number of complaints. Marketing Director should also think about
using more measures to more accurately monitor performance of the company.
cial Management
na Zarzycka, Ph.D.
WACC
13.67%
in revenue
ROI
20.00%
VC diff.
-191000
VC % diff.
-33.69%
VC / Revenue
27.00%
Revenue diff.
261645
Revenue % diff.
12.46%
n Net assets
ROI
20.00%
me amount of
e required drop in Net
NA diff.
-955000
NA % diff.
-30.22%