管理會(huì)計(jì)學(xué)課件.ppt

1、ADVANCED MANAGEMENT ACCOUNTING,Performance Evaluation,Learning Objectives,Compute and explain return on investment (ROI), residual income (RI), and economic value added (EVA) Discuss methods of evaluating and rewarding managerial performance,Measuring the Performance of Investment Centers,Return on

2、Investment (ROI) Residual Income (RI) Economic Value Added (EVA),Return On Investment (ROI),Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.,10-5,Return on Investment (ROI) Formula,Cash, accounts receivable, inventory, plant and equipment, and other

3、productive assets.,Income before interest and taxes (EBIT),10-6,Net Book Value versus Gross Cost,Most companies use the net book value of depreciable assets to calculate average operating assets.,10-7,Components of ROI,Decomposition of the ROI formula: ROI = Operating income/Average operating assets

4、 = (Operating income/Sales) x (Sales/Average operating assets) = Operating income margin x Operating asset turnover,Understanding ROI,10-9,An ROI Example,Year 1:Snack FoodsAppliance Division Division Sales$30,000,000$117,000,000 Operating income1,800,0003,510,000 Average operating assets10,000,00019

5、,500,000 Year 2: Sales$40,000,000$117,000,000 Operating income2,000,0002,925,000 Average operating assets10,000,00019,500,000 Minimum return of 10%,Margin and Turnover Comparisons,Snack Food Appliance Year 1Year 2Year 1Year 2 Margin6.0%5.0%3.0%2.5% Turnoverx 3.0 x 4.0 x 6.0 x 6.0 ROI 18.0%20.0%18.0%

6、15.0%= = = =,Increasing ROI,There are three ways to increase ROI . . .,Increase Sales,Reduce Expenses,Reduce Assets,10-12,Increasing ROI An Example,Regal Company reports the following: Net operating income $ 30,000 Average operating assets $ 200,000 Sales $ 500,000 Operating expenses $ 470,000,What

7、is Regal Companys ROI?,10-13,Increasing ROI An Example,10-14,Investing in Operating Assets to Increase Sales,Suppose that Regals manager invests in a $30,000 piece of equipment that increases sales by $35,000, while increasing operating expenses by $15,000.,Lets calculate the new ROI.,Regal Company

8、reports the following: Net operating income $ 50,000 Average operating assets $ 230,000 Sales$ 535,000 Operating expenses $ 485,000,10-15,Investing in Operating Assets to Increase Sales,ROI increased from 15% to 21.8%.,10-16,Advantages of ROI,It encourages managers to pay careful attention to the re

9、lationships among sales, expenses, and investment, as should be the case for a manager of an investment center. It encourages cost efficiency. It discourages excessive investment in operating assets.,Disadvantages of the ROI Measure,It discourages managers from investing in projects that would decre

10、ase the divisional ROI but would increase the profitability of the company as a whole. (Generally, projects with an ROI less than a divisions current ROI would be rejected.) It can encourage myopic behavior, in that managers may focus on the short run at the expense of the long run.,Criticisms of RO

11、I,In the absence of the balanced scorecard, management may not know how to increase ROI.,Managers often inherit many committed costs over which they have no control.,Managers evaluated on ROI may reject profitable investment opportunities.,10-19,Residual Income,Compute residual income and understand

12、 its strengths and weaknesses.,10-20,Residual Income - Another Measure of Performance,Net operating income above some minimum required return on operating assets,10-21,Residual Income,Residual income is the difference between operating income and the minimum dollar return required on a companys oper

13、ating assets: Residual income = Operating income - (Minimum rate of return x Operating assets),Calculating Residual Income,(,),ROI measures net operating income earned relative to the investment in average operating assets. Residual income measures net operating income earned less the minimum requir

14、ed return on average operating assets.,10-23,Residual Income Example,Project IProject II Investment$10,000,000$4,000,000 Operating income1,300,000640,000 Targeted ROI10%10%,Residual Income Example,Project I Residual income = Operating income - (Minimum rate of return x Operating assets) Residual inc

15、ome = $1,300,000 - (0.10 x $10,000,000) = $1,300,000 - $1,000,000 = $300,000 Project II Residual income= $640,000 - (0.10 x $4,000,000) = $640,000 - $400,000 = $240,000,Residual Income An Example,The Retail Division of Zephyr, Inc. has average operating assets of $100,000 and is required to earn a r

16、eturn of 20% on these assets. In the current period, the division earns $30,000.,Lets calculate residual income.,10-26,Residual Income An Example,10-27,Motivation and Residual Income,Residual income encourages managers to make investments that are profitable for the entire company but would be rejec

17、ted by managers who are evaluated using the ROI formula.,10-28,Quick Check ,Redmond Awnings, a division of Wrap-up Corp., has a net operating income of $60,000 and average operating assets of $300,000. The required rate of return for the company is 15%. What is the divisions ROI? a. 25% b. 5% c. 15%

18、 d. 20%,10-29,Quick Check ,Redmond Awnings, a division of Wrap-up Corp., has a net operating income of $60,000 and average operating assets of $300,000. The required rate of return for the company is 15%. What is the divisions ROI? a. 25% b. 5% c. 15% d. 20%,ROI = NOI/Average operating assets = $60,

19、000/$300,000 = 20%,10-30,Quick Check ,Redmond Awnings, a division of Wrap-up Corp., has a net operating income of $60,000 and average operating assets of $300,000. If the manager of the division is evaluated based on ROI, will she want to make an investment of $100,000 that would generate additional

20、 net operating income of $18,000 per year? a. Yes b. No,10-31,Redmond Awnings, a division of Wrap-up Corp., has a net operating income of $60,000 and average operating assets of $300,000. If the manager of the division is evaluated based on ROI, will she want to make an investment of $100,000 that w

21、ould generate additional net operating income of $18,000 per year? a. Yes b. No,Quick Check ,ROI = $78,000/$400,000 = 19.5% This lowers the divisions ROI from 20.0% down to 19.5%.,10-32,Quick Check ,The companys required rate of return is 15%. Would the company want the manager of the Redmond Awning

22、s division to make an investment of $100,000 that would generate additional net operating income of $18,000 per year? a. Yes b. No,10-33,The companys required rate of return is 15%. Would the company want the manager of the Redmond Awnings division to make an investment of $100,000 that would genera

23、te additional net operating income of $18,000 per year? a. Yes b. No,Quick Check ,ROI = $18,000/$100,000 = 18% The return on the investment exceeds the minimum required rate of return.,10-34,Quick Check ,Redmond Awnings, a division of Wrap-up Corp., has a net operating income of $60,000 and average

24、operating assets of $300,000. The required rate of return for the company is 15%. What is the divisions residual income? a. $240,000 b. $ 45,000 c. $ 15,000 d. $ 51,000,10-35,Quick Check ,Redmond Awnings, a division of Wrap-up Corp., has a net operating income of $60,000 and average operating assets

25、 of $300,000. The required rate of return for the company is 15%. What is the divisions residual income? a. $240,000 b. $ 45,000 c. $ 15,000 d. $ 51,000,10-36,Quick Check ,If the manager of the Redmond Awnings division is evaluated based on residual income, will she want to make an investment of $10

26、0,000 that would generate additional net operating income of $18,000 per year? a. Yes b. No,10-37,Quick Check ,If the manager of the Redmond Awnings division is evaluated based on residual income, will she want to make an investment of $100,000 that would generate additional net operating income of

27、$18,000 per year? a. Yes b. No,10-38,Divisional Comparisons and Residual Income,The residual income approach has one major disadvantage. It cannot be used to compare the performance of divisions of different sizes.,10-39,Zephyr, Inc. - Continued,10-40,Zephyr, Inc. - Continued,The residual income num

28、bers suggest that the Wholesale Division outperformed the Retail Division because its residual income is $10,000 higher. However, the Retail Division earned an ROI of 30% compared to an ROI of 22% for the Wholesale Division. The Wholesale Divisions residual income is larger than the Retail Division

29、simply because it is a bigger division.,10-41,Economic Value Added,Economic value added (EVA) is after-tax operating profit minus the total annual cost of capital. The equation for EVA is expressed as follows: EVA = After-tax operating income - (Weighted average cost of capital) x (Total capital emp

30、loyed),Cost of Capital,There are two steps involved in computing cost of capital: 1.determine the weighted average cost of capital (a percentage figure) 2.determine the total dollar amount of capital employed,Weighted Average Cost of Capital,Suppose that a company has two sources of financing: $2 mi

31、llion of long-term bonds paying 9 percent interest and $6 million of common stock, which is considered to be of average risk. If the companys tax rate is 40 percent and the rate of interest on long-term government bonds is 6 percent, the companys weighted average cost of capital is computed as follo

32、ws: AmountPercentx After-Tax Cost= Weighted Cost Bonds $2,000,0000.25 0.09(1.0 - 0.4) = 0.0540.0135 Equity 6,000,0000.75 0.06 +0 .06 = 0.1200.0900 Total $8,000,0000.1035 =,EVA Example,Suppose that Furman, Inc., had after-tax operating income last year of $1,583,000. Three sources of financing were u

33、sed by the company: $2 million of mortgage bonds paying 8 percent interest, $3 million of unsecured bonds paying 10 percent interest, and $10 million in common stock, which was considered to be no more or less risky than other stocks. Furman, Inc., pays a marginal tax rate of 40 percent.,Weighted Average Cost of Capital,The weighted average cost of capital for Furman, Inc. is computed as