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q explain about value based managementvalue based management vbm is an approach which focuses on strategies and actions to create more value for
q behaviour of divisional senior executiveseva can affect the behaviour of divisional senior executives in the following ways1 they would
division y has annual operating profit of pound40 million after charging pound6 million for the development cost of a new product which has been
differences of eva and ri eva uses the replacement not historical accounting cost of assets profit calculated under both methods are different eg
limitations of economic value added eva - not well understood by users of accounts- divisions of different sizes cannot be relatively
merits of economic value added eva- cash not accounting based measure therefore less distorted for performance measurement- consistent or
q explain economic value addedeconomic value added was developed by stern stewart amp co and is a registered trademark eva is an estimate of economic
q define market value addedmva is an external measure of shareholder wealth the market value added from one period to another it is measured by the
free cash flows can be arrived at by using the following calculationoperating profit before interest and tax pbit
q free cash-flow valuationsearnings create dividends for shareholders in theory the value of a company is the value of the companys future earnings
alfred rappaports definition of shareholder wealth value shareholder value corporate business value - debt the corporate value represents the
the following details are available for company z middot share price at the beginning of the year pound387 share price at the end of the year
q evaluate total shareholder returntotal shareholder return tsrtsr dividend per share growth in share price market share price at the start of the
q evaluate the dividend yieldcreating shareholder value dividend yielddividend yield dividend per share market share price x
q problems of pursuing only profit objectives- conflict with other stakeholder goals for example customers will want a better service and not want to
q diffrence between roce and riboth roce and ri are good measures to use when assessing financial performance since both consider the capital
q show the example on residual incomedivision a makes and sells a single product and is assessed by the residual income it earns the head office of
q show the merits of residual incomemerits of residual income ri- consistent or goal congruence with profit maximisation eg an enforced measure
q explain about residual incomeresidual income is profit earned by a division less a notional interest charge for investment of finance within
division x has a target return on investment roi of 12 it has fixed costs of pound400000 and a variable cost per unit of pound5 the net
q show the demerits of using return on investmentthe following disadvantages maybe experienced when choosing to use roi as a primary performance
q show the merits of using return on investmentmerits of using return on investment roi- relative percentage measure so performance can be
q illustrate about return on capital employedreturn on capital employed roce profit before interest and tax pbit
problems of profit based measures - absolute profit measures ignore the amount of investment in the division eg does not look at profit relative
q what is uncontrollable costs uncontrollable costs general apportioned fixed overhead eg group overhead allocated or apportioned to divisions which