Problem: The following is Tennis Today's financial statement for the year ending December 31, 2006, in total and by division:
Total Division A Divsion B
Assets
Cash $ 46,000 $ 10,000 $ 36,000
Accounts Receivable 89,000 37,000 52,000
Inventory 198,000 72,000 126,000
Fixed Assets 1,850,000 900,000 950,000
Total 2,183,000 1,019,000 1,164,000
Liabilities:
Accounts Payable $ 65,000 $ 28,000 $ 37,000
Bank debt 1,620,000 800,000 820,000
Total 1,685,000 828,000 857,000
Stockholder's Equity 498,000
Total liabilities and equity 2,183,000
Revenues 1,500,000 500,000 1,000,000
Expenses 1,150,000 300,000 850,000
Net Income 350,000 200,000 150,000
A. If the stockholders own shares of the company in total, and not in the individual divisions, how can the divisional managers' performance be evaluated in terms of building stockholder wealth?
B. From and ROI perspective, which of the two divisions has shown better performance? (Assume that ending assets reflect average operating assets for the year.)