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

Plan transition curves and superelevation, Current traffic pattern given as...

Current traffic pattern given as below.                                                 ZONE DESTINATION ZONE ORIGIN 1 2 3

Multidimensional performance measurement, Q. Multidimensional performance m...

Q. Multidimensional performance measurement? Multidimensional performance  indicators recognise that the constant drive to increase profitability can ultimately be self-defeati

Estimate the cost of making the threaded studs, Estimate the manufacturing ...

Estimate the manufacturing cost for a bearing housing following the Formula Student Costing Scheme.   Dimensions and materials of the bearing housing will depend on your student

What makes a strategy a winner, What Makes a Strategy a Winner? 1.   T...

What Makes a Strategy a Winner? 1.   Three questions are used to examine the merits of one strategy versus other & distinguish a winning strategy from a losing or mediocre str

Technical reference model, Describe the structure and role of the Tech...

Describe the structure and role of the Technical Reference Model (TRM) in the The Open Group Architecture Framework (TOGAF).  What is the purpose of this component?

Define managerial process of crafting & executing strategy, Define Manageri...

Define Managerial Process of Crafting & Executing Strategy the managerial ins & outs of crafting & executing company strategies. Special thought is given to management's direc

Vender cost , Items purchased from a vender cost $20 every, and the forecas...

Items purchased from a vender cost $20 every, and the forecast for the next year's require is 1,000 units.  The cost of placing an order is estimated to be $5 each time an order is

Strategy Formulation, # 14 Strategy formulation presupposes a set of goals ...

# 14 Strategy formulation presupposes a set of goals and objectives. Why aren''t goals and objectives obvious? What characteristics of people and organizations can make setting goa

What are the benefits of cause and effect diagram, Question 1: a. List ...

Question 1: a. List out Dr. Edward Deming's contribution to Quality. b. Show the eight dimensions of Quality. Dr. Edward Deming's contribution to Quality. Eight dimen

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