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

Explain the importance of strategy development, Question 1: Custom Wine...

Question 1: Custom Wine Colorado Glasses of Leadville, Colorado, has just collected data from 75 defects from the day's production. a) As quality expert, you decide to con

Designing stakeholders evaluation policies, 1. What stakeholders would you ...

1. What stakeholders would you have in the designing of the teacher evaluation policies? 2. What would be inclusive in a teacher evaluation process? (be very specific) 3. When

Marketing plan, The market plan should be made based on a Hot Dog Vending C...

The market plan should be made based on a Hot Dog Vending Cart which is actually a hypothetical company I have created that operates in the US. Besides selling hot dogs, I would be

Four perspectives of the balanced scorecard, Four perspectives of the balan...

Four perspectives of the balanced scorecard Customer perspective e.g. what should we do right for our customers and what do they value? Internal perspective e.g. what

Global environment, what are the issues in a global environment

what are the issues in a global environment

Show the demerits of using return on investment, Q. Show the Demerits of us...

Q. Show the Demerits of using return on investment? The following disadvantages maybe experienced when choosing to use ROI as a primary performance measure. -  An accounting

Beyond budgeting, A philosophy that believes traditional or conventional bu...

A philosophy that believes traditional or conventional budgeting methods are of little use to management, however beyond budgeting does not believe that budgeting within organisati

Market demand and supply information , What kind of market demand and suppl...

What kind of market demand and supply information would be useful to you in deciding upon a business strategy?   Ans) Market Demand and Supply Information  1) Do you requ

Analyse link between corporate strategy and bottom line, Question 1: "S...

Question 1: "Strategic Corporate Social Responsibility executed well is effective Corporate Social Responsibility". What are the essential elements to take into account in o

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