Notas de lectura

Performance evaluation systems and ROI

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Grado
Management economics

Institución
University Of Exeter (UoEX)

Performance evaluation systems and ROI: Explains performance evaluation systems, the advantages/ disadvantages. Discusses Divisional performance evaluation and ROI, including examples and analysis arguments.

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Subido en 28 de julio de 2022
Número de páginas 2
Escrito en 2021/2022
Tipo Notas de lectura
Profesor(es) Anna
Contiene Todas las clases

roi
exeter business
accounting
management
managerial accounting
second year module
performance evaluation systems and roi
uoe
divisional performance evaluation

Institución
University of Exeter (UoEX)
Estudio Desconocido
Grado
Management economics

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Managerial Accounting 5.10.20

Performance evaluation systems and ROI

Performance evaluation systems

o Objective of the systems is to help the company implement the strategy
o Can ensure companies meet objectives
o Usually based on accounting measures of performance
- Readily available
- Easy to understand and evaluate

o Can alternatively use share price (market measures)
- But many factors affect share price
- Very volatile measure
- Unavailable for private companies

Return on investment (ROI)

- Earnings before interest expenses and taxes/assets employed
- ROI=Income/Invested capital (capital employed)
- Income: earnings before interest before depreciation
- If project ROI < average ROI of centre, project is rejected
- Managers can use this to evaluate new projects

- Income: $30,000 (Profit)
- Invested capital: $200,000 (Net assets)
30,000/200,000 = 15%

Disadvantages:
- Can lead to over/under investment because it can provide incentives to managers to reject
profitable projects (ROI lower than mean ROI may mean managers reject)
- Net income does not include value increases
- Companies may keep old assets in the books to make figures look better
- Accounting net income is conservative
- Total assets exclude intangible assets

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