Explain about residual income, Strategic Management

Assignment Help:

Q. Explain about Residual income?

Residual income is profit earned by a division less a "notional interest charge" for investment of finance within it.   

                                                                                                                       £

Profit before interest and tax (PBIT)                                                               X

Capital employed x head office % interest charge                                         (X)

Residual income                                                                                               X

Residual income uses the same profit before interest and tax and capital employed value as the ROCE measure.   Residual income is an absolute measure which deducts from profit before tax andinterest, an imputed "notional" interest charge using a cost of capital or return required.  The more capital employed the division consumes then the lower the residual income due to a higher absolute interest charge. In effect residual income forces managers to understand the cost of finance when undertaking investment decisions.


Related Discussions:- Explain about residual income

How cost-leadership make use of ict, Question 1: (a) Explain a framewor...

Question 1: (a) Explain a framework for a company to manage its application portfolio. (b) Apply the application portfolio concept to show the different applications for a

Illustrate about value for money framework, Q. Illustrate about Value for m...

Q. Illustrate about Value for money framework? The value for money (VFM) framework (the 3Es)  Economy (Cheap) e.g. is the organisation procuring resources at the lowe

Benefit in a global market, 1.  Execute an e-strategy in an organisation. ...

1.  Execute an e-strategy in an organisation. 2.  Develop processes to monitor the execution of an e-strategy in an organisation. 3.  Assess how an e-strategy contributes to

Quality product, An electronics firm is presently manufacturing an item tha...

An electronics firm is presently manufacturing an item that has a variable cost of $0.50 per unit and a selling price of $1.00 per unit.  Fixed costs are$14,000 per month.  present

Show the limitations of ratio analysis, Q. Show the Limitations of ratio an...

Q. Show the Limitations of ratio analysis ? A ratio on its own is meaningless, accounting ratios must always be interpreted in relation to other information.  Ratios based on h

Statistical procedure for management, A highly perishable drug spoils after...

A highly perishable drug spoils after three days.  That is, a fresh unit on day t may be used on day t, day t+1, and day t+2, but must be disposed of at the end of day t+2. Each

30137341, #questatra is the world''s third oldest car company, and produced...

#questatra is the world''s third oldest car company, and produced a number of rather advanced streamlined cars during the course of its production run. Because spare parts and manu

Organisations strategic capabilities, Strategies of the organisation suppor...

Strategies of the organisation support in the business expansion and increase the revenue . Following are the strategic capabilities: Production: Open kitchen system is used by

Blueprinting a full-service travel agency experience, Blueprinting a full-s...

Blueprinting a full-service travel agency experience 1.Present this service organisation as a blueprint with a flowchart and 500 words minimum.Flowchart Must show time dimensions

Explain the factors that cause unsuccessful implementation, Question: S...

Question: Strategy implementation can be said to consist of securing resources, organizing these resources and directing the use of these resources within and outside the organ

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd