CMN 201 Chapter Notes -Earnings Before Interest And Taxes, Profit Center, Income Tax
25 Nov 2013
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Lo1 discuss how decision-making responsibility and authority are related to performance. Lo2 explain how responsibility centres are used to measure, monitor, and motivate evaluation. performance. Lo3 calculate return on investment, residual income and economic value added and explain how each is used to measure, monitor and motivate performance. Lo4 discuss how compensation is used to motivate performance. These learning objectives (lo1 through lo4) are cross-referenced in the textbook to individual exercises and problems. 16. 1 roi is calculated by dividing operating income by average assets, or income/assets. It can be decomposed as follows: roi = sales/assets x income/sales. 16. 2 roi can be increased by cutting costs or reducing assets. Cost cutting can improve short- term results but harm long-term results if discretionary expenditures such as advertising and research and development are cut. Similarly, reducing investment in new projects could improve roi in the short term, but harm the organization in the long term.
