Explain about residual income, Strategic Management

Assignment Help:

Q. Explain about Residual income?

Residual income is profit earned by a division less a "notional interest charge" for investment of finance within it.   

                                                                                                                       £

Profit before interest and tax (PBIT)                                                               X

Capital employed x head office % interest charge                                         (X)

Residual income                                                                                               X

Residual income uses the same profit before interest and tax and capital employed value as the ROCE measure.   Residual income is an absolute measure which deducts from profit before tax andinterest, an imputed "notional" interest charge using a cost of capital or return required.  The more capital employed the division consumes then the lower the residual income due to a higher absolute interest charge. In effect residual income forces managers to understand the cost of finance when undertaking investment decisions.


Related Discussions:- Explain about residual income

Evaluating published research, Choose an academic article and produce an ac...

Choose an academic article and produce an academic review in which you analyse, criticise, and reflect on the paper, of no more than 1200 words. The summary should include some def

Limitations of economic value added, Limitations of economic value added (E...

Limitations of economic value added (EVA) -  Not well understood by users of accounts. -  Divisions of different sizes cannot be relatively compared. Similarities of EV

Explain about financial analysis, Q. Explain about Financial analysis? ...

Q. Explain about Financial analysis? The objective of financial statements is to provide information to all users of accounts to help them for decision-making.  Note that most

Determine best strategy, The number of households in a certain community is...

The number of households in a certain community is given by h(t) = 1:26t 2 +7800 households t years after 2001. The proportion (expressed as a decimal) of the households in this s

Activities in strategic management process, a) identify and explain the key...

a) identify and explain the key activities in the strategic management process. b) why do businesses need to go international .?

Cadbury dairy milk, Value proposition and product customer connect of cadbu...

Value proposition and product customer connect of cadbury dairy milk

Vikash kumar, social responsblities of strategic decision maker

social responsblities of strategic decision maker

Solve this question as soon as posibble, Tangy spices Ltd, the countries’ ...

Tangy spices Ltd, the countries’ biggest spices marketer has decided to launch a hostile bid for Italy’s major spice marketer Chilliano. This is a rare case of an Indian company ma

Define global and international regional strategies, 1. What are the streng...

1. What are the strengths and weaknesses of the mission statement? Which of these statements are effective guides to decision-making within an organization? Which, if any, of th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd