Professional Documents
Culture Documents
Assets Employed
Measuring & Controlling
Assets Employed
2 methods
ROI EVA
Purpose of the Analysis
Fixed Assets
Corporate Equity 500 Cost 600
Depreciation 300
Sales 1000
Expenses 850
Depreciation 50 900
ROI= 100/500=20%
Return on Investments
Fixed Assets
Corporate Equity 500 Cost 600
Depreciation 300
Receivable Investments
Cash
Property,
Working Plant &
Capital Equipments
Assets Employed
Cash
•Better to have Central Control
•Can be % of Sales
•Can be equivalent to monthly sales
•Few companies omit cash from
investments
Assets Employed
Receivable
•Whether CP or Sp?
Assets Employed
Inventories
Working
Capital
•Whether to include CA in Investments?
Property,
Plant &
•Acquisition of New Equipments Equipments
•Gross Book Value
•Annuity Depreciation
•Other Valuation Methods
•Leased Assets
•Idle Assets
•Intangible Assets
•Non-Current Liabilities
•Capital Charge
•Survey of Practices
ROI & EVA
Benefits of ROI
•Comprehensive Ratio
•Simple to Calculate
•Common denominator
Benefits of EVA
•Profit as objective
•Strong correlation with market Value
Increasing EVA
ROI
Business Cash Receivable Inventories Fixed Assets Total Investments Budgeted Profit ROI
Unit
A 10 20 30 60 120 24 20%
B 20 20 30 50 120 14.4 12
C 15 40 40 10 105 10.5 10
D 5 10 20 40 75 3.8 5
E 10 5 10 10 35 ( 1.8) (5)
EVA
1 2 3 4 5 6 7
Business profit Amount Rate Req.Earnings Amount Rate Req Earnings Budgeted EVA
Unit Potential (1)-{ (4)+( 7 )
Strategic Direction
Acquisition
Operational Improvement
Product Line Discontinuation
Working Capital Focus
Cost of Capital Focus
Incentive Compensation
Evaluating EC Performance of the Equity
Diagnostic instruments
Dell Marden
Computers Company