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Q. Methods for evaluating the performance of divisions?
Profit based methods for evaluating the performance of divisions
Operating profit (net profit) margin
= (Profit before interest and tax (PBIT)/ Turnover)x 100%
Gross profit (sales) margin
= (Turnover less cost of sales (gross profit)/ Turnover) x 100%
Generally the gross profit or sales margin can also be referred to as the contribution to sales (C/S) ratio e.g. gross profit (sales less variable cost) ÷ sales.
Mark up
= (Turnover less cost of sales (gross profit) / Cost of sales) x 100%
Controllable profit
The controllability principle indicated that a manager should not be assessed on costs which are not within their own control.
Limitations of economic value added (EVA) - Not well understood by users of accounts. - Divisions of different sizes cannot be relatively compared. Similarities of EV
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Process design strategy define with example
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