[管理学]PPT_ch13_Management_Accounting_5e_OK
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13-15
Copyright 2006 McGraw-Hill Australia
Pty Ltd PPTs t/a Management
13-16
Measuring profit
• Profit margin controllable by investment centre manager • Suitable when the focus is performance of the manager • Encourages managers to focus on profit that they can control • Motivational impact
• Encourages managers to defer asset replacement • To maintain high ROI and apparent high performance
• Discourages managers from investing in projects which are acceptable fr om the organisation’s point of view, but decrease the investment centre’ s ROI
• Formula is biased in favour of larger businesses, unlike ROI • Can encourage short-term orientation/focus, as with ROI
13-13
Measuring profit and invested c apital
• Profit margin attributable to investment centre • To calculate the investment centre ROI
13-17
Copyright 2006 McGraw-Hill Australia
Pty Ltd PPTs t/a Management
• Consider alternative ways of measuring invested capital to minimise dysfu nctional decisions
• Use alternative financial measures, such as residual income or economic v alue added
13-10
Residual income
• Residual income (RI) = profit – (invested capital × imputed interest rate)
• Imputed interest charge • Based on the required rate of return that the firm expects of its investments, which is based on the organisation’s cost of capital • Weighted average cost of capital (WACC) is the weighted average of the cost of funds from all sources of borrowings and equity
13-2
Financial measures in investmen t centres
• Focus on summary profit-based measures used to evaluate the performa nce of profit centres and investment centres • Return on investment (ROI) • Residual income (RI) • Economic value added (EVA)
13(-c4ont.)
Return on investment (cont.)
ROI
prof it
investedcapital
profit
sales revenue
sales revenue investedcapital
returnon sales investment turnover
13-8
The limitations of ROI
• Encourages managers to focus on short-term financial performance at th e expense of long-term viability and competitiveness
Chapter 13
Financial performance measures for i nvestment centres, and reward system
s
13-1
Outline
• Financial measures in investment centres • Return on investments • Residual income • Measuring profit and invested capital • Measures of shareholder value • Reward systems • Theories of motivation • Performance-related reward systems
13-18
Measures of shareholder value
• Shareholder value • Improving the worth of the business from the shareholders’ perspec tive
13-14
Asset measurement
• Advantages of carrying amount • Consistency with balance sheet that is prepared for external reportin g purposes • Consistent with the definition of profit
• Advantages of acquisition cost • Choice of depreciation method is arbitrary and resulting carrying am ount does not provide a reliable measure • Depreciating non-current assets may provide a disincentive to invest in new equipment
13-7
The advantages of ROI
• Very widely used to measure the performance of units and managers • Encourages managers to focus on profits, and the assets required to generate tho
• Investment turnover • The number of sales dollars generated by every dollar of invested ca pital
13(-c6ont.)
Return on investment (cont.)
• Improving ROI • Increase return on sales • By increasing the selling price or sales revenue, or decreasing ex penses • Increase investment turnover • By increasing sales revenue or reducing invested capital • Actions that are taken with the sole purpose of making these ratios more favourable in the short term may have adverse effects on perf ormance in future years
• Total assets • Investment centre manager is responsible for decisions about all asse ts
• Total productive assets • Investment centre managers retain non-productive assetehavioural pro blems of ROI
• Use ROI as one of several performance measures that focus on both shor t-term and long-term performance
• Total assets less current liabilities • Investment centre is responsible for decisions about assets and mana ges short-term liabilities
• Choose average or end-of-year balances
13(-c5ont.)
Return on investment (cont.)
• Invested capital • The assets that the investment centre has available to generate profi ts
• Return on sales • The percentage of each sales dollar that remains as profit after all th e expenses are covered
se profits • Promotes an understanding of the relationship between revenues, costs and a ssets
• Can be used to evaluate the relative performance of investment centres • Even when those business units are of different sizes
13-3
Return on investment
• Return on investment (ROI) • Used to measure the performance of an investment centre
Return on investment
profit
invested capital
13-11
The advantage of residual inco me
• More likely to promote goal congruence, compared to ROI • Takes account of the organisation’s required rate of return in measuring
performance • Encourages investment in projects which yield a positive residual income
to the organisation
13-12
Disadvantages of residual incom e
• Cannot be used to assess the relative performance of businesses that are of different sizes, unlike ROI
Copyright 2006 McGraw-Hill Australia
Pty Ltd PPTs t/a Management
13-16
Measuring profit
• Profit margin controllable by investment centre manager • Suitable when the focus is performance of the manager • Encourages managers to focus on profit that they can control • Motivational impact
• Encourages managers to defer asset replacement • To maintain high ROI and apparent high performance
• Discourages managers from investing in projects which are acceptable fr om the organisation’s point of view, but decrease the investment centre’ s ROI
• Formula is biased in favour of larger businesses, unlike ROI • Can encourage short-term orientation/focus, as with ROI
13-13
Measuring profit and invested c apital
• Profit margin attributable to investment centre • To calculate the investment centre ROI
13-17
Copyright 2006 McGraw-Hill Australia
Pty Ltd PPTs t/a Management
• Consider alternative ways of measuring invested capital to minimise dysfu nctional decisions
• Use alternative financial measures, such as residual income or economic v alue added
13-10
Residual income
• Residual income (RI) = profit – (invested capital × imputed interest rate)
• Imputed interest charge • Based on the required rate of return that the firm expects of its investments, which is based on the organisation’s cost of capital • Weighted average cost of capital (WACC) is the weighted average of the cost of funds from all sources of borrowings and equity
13-2
Financial measures in investmen t centres
• Focus on summary profit-based measures used to evaluate the performa nce of profit centres and investment centres • Return on investment (ROI) • Residual income (RI) • Economic value added (EVA)
13(-c4ont.)
Return on investment (cont.)
ROI
prof it
investedcapital
profit
sales revenue
sales revenue investedcapital
returnon sales investment turnover
13-8
The limitations of ROI
• Encourages managers to focus on short-term financial performance at th e expense of long-term viability and competitiveness
Chapter 13
Financial performance measures for i nvestment centres, and reward system
s
13-1
Outline
• Financial measures in investment centres • Return on investments • Residual income • Measuring profit and invested capital • Measures of shareholder value • Reward systems • Theories of motivation • Performance-related reward systems
13-18
Measures of shareholder value
• Shareholder value • Improving the worth of the business from the shareholders’ perspec tive
13-14
Asset measurement
• Advantages of carrying amount • Consistency with balance sheet that is prepared for external reportin g purposes • Consistent with the definition of profit
• Advantages of acquisition cost • Choice of depreciation method is arbitrary and resulting carrying am ount does not provide a reliable measure • Depreciating non-current assets may provide a disincentive to invest in new equipment
13-7
The advantages of ROI
• Very widely used to measure the performance of units and managers • Encourages managers to focus on profits, and the assets required to generate tho
• Investment turnover • The number of sales dollars generated by every dollar of invested ca pital
13(-c6ont.)
Return on investment (cont.)
• Improving ROI • Increase return on sales • By increasing the selling price or sales revenue, or decreasing ex penses • Increase investment turnover • By increasing sales revenue or reducing invested capital • Actions that are taken with the sole purpose of making these ratios more favourable in the short term may have adverse effects on perf ormance in future years
• Total assets • Investment centre manager is responsible for decisions about all asse ts
• Total productive assets • Investment centre managers retain non-productive assetehavioural pro blems of ROI
• Use ROI as one of several performance measures that focus on both shor t-term and long-term performance
• Total assets less current liabilities • Investment centre is responsible for decisions about assets and mana ges short-term liabilities
• Choose average or end-of-year balances
13(-c5ont.)
Return on investment (cont.)
• Invested capital • The assets that the investment centre has available to generate profi ts
• Return on sales • The percentage of each sales dollar that remains as profit after all th e expenses are covered
se profits • Promotes an understanding of the relationship between revenues, costs and a ssets
• Can be used to evaluate the relative performance of investment centres • Even when those business units are of different sizes
13-3
Return on investment
• Return on investment (ROI) • Used to measure the performance of an investment centre
Return on investment
profit
invested capital
13-11
The advantage of residual inco me
• More likely to promote goal congruence, compared to ROI • Takes account of the organisation’s required rate of return in measuring
performance • Encourages investment in projects which yield a positive residual income
to the organisation
13-12
Disadvantages of residual incom e
• Cannot be used to assess the relative performance of businesses that are of different sizes, unlike ROI