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Date Submitted: 02/28/2016 02:56 AM
Chapter 13
After completing this chapter, you should be able to:
1
2
calculate an investment centre’s return on investment (ROI), and residual income;
3
explain how to minimise the negative behavioural incentives associated with using return
on investment to evaluate performance;
4
calculate residual income (RI) for an investment centre, and describe some advantages
and disadvantages of using RI to evaluate performance;
5
understand the various definitions of invested capital and assets and use these to
calculate return on investment and residual income;
6
7
understand the concept of value-based management;
8
understand market value added (MVA) and shareholder value added (SVA) as measures of
investment centre performance;
9
understand how reward systems can be designed and used to enhance motivation and
individual performance;
describe some advantages and limitations of both ROI and residual income as
performance measures;
evaluate and calculate economic value added (EVA®) as a measure of investment centre
performance;
10
understand the different forms of performance-related reward systems used in
organisations;
11
understand the advantages and disadvantages associated with group versus individual
rewards; and
12
understand the importance of the timing of payment of rewards on motivation.
LEARNING OBJECTIVES
Financial performance
measures for strategic
business units, and
reward systems
2
PA R T 3 • I N F O R M AT I O N
FOR
MANAGING RESOURCES
I
n Chapter 12, we introduced decentralisation and responsibility accounting, and examined the nature of
financial performance reports for responsibility accounting units. In this chapter, we will extend that
discussion by looking financial performance measures used in investment centres. That is, we will
consider the advantages and disadvantages of measuring financial performance using return on investment
(ROI),...