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

Show the activity based budgeting, Q. Show the Activity based budgeting? ...

Q. Show the Activity based budgeting? Activity based budgeting (ABB) uses cost  'drivers'  for  different  support  resources consumed e.g. machining, quality control or admini

Movie Exhibition Industry, Review trends in the general environment that af...

Review trends in the general environment that affect the movie exhibition business, and establish whether their effects are helpful or harmful to theater owners.

What do you mean by controllable costs, Q. What do you mean by Controllable...

Q. What do you mean by Controllable costs? Controllable costs Divisional variable (marginal) cost. Divisional 'specific' fixed cost e.g. Specifically incurred by

GE matrix, Characteristics of each component of GE matrix

Characteristics of each component of GE matrix

Open communication , 1. Encourage open communication among team members to ...

1. Encourage open communication among team members to support team development 2. Demonstrate ways of resolving conflict among team members

Identify and critically analyse fundamental issues r, identify and critical...

identify and critically analyse fundamental issues related to strategic management. Undertake a study that shows clear evidence of synthesis and evaluation

Strategic analysis, conduct a strategic analysis, and write a report on a r...

conduct a strategic analysis, and write a report on a real-life business (MYER) . This report will focus on business-level strategy.

Mensa, Develop a five-year strategic plan with cost estimates and a time li...

Develop a five-year strategic plan with cost estimates and a time line. It should be 5-7 double-spaced, typed (12 point) pages plus exhibits. Your plan should include/address the f

Develop a performance measurement system, Recommended process to develop a ...

Recommended process to develop a performance measurement system  1. Senior management need to determine a clear vision of the change that will be required and demonstrate comm

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