How do you calculate divisional profit?
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explain the factors that should be considered in designing performance measures for evaluating divisional managers; Show
explain why it is preferable to distinguish between managerial and economic performance; distinguish between return on investment and residual income; calculate controllable residual income; illustrate how performance measures may conflict with the net present value decision model; justify the use of a risk-adjusted discount rate for evaluating divisional projects; explain why it is important to include additional non-financial measures in divisional performance reports. Keywords
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Learn about institutional subscriptions PreviewUnable to display preview. Download preview PDF. Unable to display preview. Download preview PDF. Amey, L.R. (1975) Tomkins on residual income, Journal of Business Finance and Accounting, 2 (1), 55–68. CrossRef Google Scholar Amey, L.R. (1980) Interest on equity capital as an ex-post cost, Journal of Business Finance and Accounting, Autumn, 347–65. Google Scholar Bierman, H. (1973) ROI as a measure of managerial performance, Financial Executive (USA), March, 40–5. Google Scholar Bromwich, M. (1973) Measurement of divisional performance: a comment and extension. Accounting and Business Research, Spring, 123–32. Google Scholar Choudhury, N. (1985) Incentives for the divisional manager, Accounting and Business Research, Winter, 11–21. Google Scholar Coates, J.B., Smith, J.E. and Stacey, R.J. 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Rights and permissionsReprints and Permissions Copyright information© 1992 J.C. Drury About this chapterCite this chapterDrury, C. (1992). Measuring divisional profitability. In: Management and Cost Accounting. Springer, Boston, MA. https://doi.org/10.1007/978-1-4899-6828-9_25 What are divisional profits?Division Profit . The pre-tax net profit of the Division at the end of each fiscal year ended during the Employment Term.
What are the methods for measuring divisional performance?Two commonly used measures of divisional performance are return on investment (ROI) and residual income (RI). Return on investment (ROI): measures operating profit as a percentage of the assets employed in the division. ROI needs to be greater than the cost of capital for a division to be profitable in the long term.
What are divisions in return on investment?ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss) by its initial cost or outlay. ROI can be used to make apples-to-apples comparisons and rank investments in different projects or assets.
How to calculate ROI in Excel?This is displayed as a percentage, and the calculation would be: ROI = (Ending value / Starting value) ^ (1 / Number of years) -1. To figure out the number of years, you'd subtract your starting date from your ending date, then divide by 365.
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