Professional Documents
Culture Documents
Calculations:
INFERENCES:
1. The professional services division exceeded the 12% gross return target but
the other two divisions failed to do so.
2. Consumer division could have underemployed the assets in order to boost
the gross ROA.
3.Cost of goods sold and the other expenses of industrial division in
comparison to consumers division could be high due to which its EBIT has
fallen down.
These inferences help us in performing a root cause analysis of the
performance of each division.
Q3.WHATINFERENCESAREDRAWN
FROMTHECOMPARATIVEBALANCE
SHEETSANDINCOMESTATEMENTS
FOR199293?
1992 1993 Inference
ROE 4.69% 4.74% ROE has improved which is of great importance for the
stakeholders.
Formulae:
WHATPITFALLSDIDTHEYAPPARENTLY
NOTANTICIPATE?
PROFIT CENTRE INVESTMENT CENTRE
WORK CAPITAL
COST($) PROFIT($) COST($) EMPLOYED PROFIT($)
The Pitfalls
Q6.WHATADVICEDOYOUHAVEFOR
RANDALLANDHUBBARD?
RandallandHubbardmustuseEVAformeasuring
andcontrollingtheassetsemployed.
EVA=Capitalemployed*(ROICostofCapital)
AdvantagesofEVA:
Allbusinessunitshavesameprofitobjectivefor
comparableinvestments.
Differentinterestratesmaybeusedfordifferent
typesofassets.
Ithasastrongerpositivecorrelationwithchangesin
companysmarketvalue.
Q7.DESIGNABALANCEDSCORECARD
FOR:
1.CONSUMERPRODUCTSDIVISION
2.INDUSTRIALPRODUCTS
DIVISION
3.PROFESSIONALSERVICE
DIVISION
WhatisabalanceScorecard?
KPIsaredefinedforeachperspective.
Actualsiscomparedwithtargets
THANKYOU