管理会计 chapter 25.ppt

1、,REWARDING BUSINESS PERFORMANCE,Chapter25,Learning Objectives,1 Explain the importance of incentive systems for motivating performance. 2 Use the DuPont system to evaluate business performance. 3 Identify and explain the criticisms of using return on investment (ROI) as the only performance measure.

2、 4 Calculate and explain residual income (RI) and economic value added (EVA). 5 Use the balanced scorecard to identify, evaluate, and reward business performance. 6 Identify and explain the components of management compensation and the trade-offs that compensation designers make.,Goal Congruence Ali

3、gnment of employeegoals and objectiveswith organizationalgoals and objectives.,Motivation and AligningGoals and Objectives,Motivation and AligningGoals and Objectives,Generating motivation requires three actions from accounting systems.,The accounting system helps create and set goals and objectives

4、 through planning information such as budgeting.,The accounting system measures progress toward the goals and provides feedback about that progress.,Accounting-based information is instrumental in allocating rewards for progress toward goal achievement.,Motivation and AligningGoals and Objectives,Fe

5、edback Steer employees toward goals. Measure progress in achieving goals.,Measureperformance.,Improveperformance.,Rewardperformance.,Return on investment is the ratio ofprofit to the average investment usedto generate the profit.,Return on Investment (ROI),Sales Average Investment,Return on Investme

6、nt (ROI),Return on Investment (ROI),Holly Company reports the following: Profit $ 30,000 Sales $ 500,000 Average Investment$ 200,000,Lets calculate ROI.,Return on Investment (ROI),Three ways to improve ROI,Increase Sales Prices,Decrease Expenses,Lower Invested Capital,Improving ROI,Improving ROI,Hol

7、lys manager was able to increasesales revenue to $600,000 whichincreased income to $42,000. There was no change in invested capital.,Lets calculate the new ROI.,Improving ROI,Holly increased ROI from 15% to 21%.,Criticisms of ROI,The short horizon problem,Failing to undertake profitable investments,

8、measurement problems,Criticisms of ROI,The short horizon problem occurs because managers frequently move from one job to another.,As division manager at Winston, Inc., your compensation package includes a salary plus bonus based on your divisions ROI - the higher your ROI, the bigger your bonus. The

9、 company requires an ROI of 15% on all new investments - your division has been producing an ROI of 30%. You have an opportunity to invest in a new project that will produce an ROI of 25%.,As division manager would you invest in this project?,Criticisms of ROI,Failing to undertake profitable investm

10、ents,Criticisms of ROI,Criticisms of ROI,measurement problems,Residual Income,The amount by which operating earnings exceed a minimum acceptable return on average invested capital is referred to as residual income,Operating Earnings Investment charge = Residual income,Investment capital Minimum retu

11、rn = Investment charge,Investment centersminimum acceptablereturn,Residual Income,Residual Income,Flower Co. has an opportunity to invest $100,000 in a project that will earn $25,000. Flower Co. has a 20 percent minimum acceptable rate of return and a 30 percent ROI on existing business.,Lets calcul

12、ate residual income.,Residual Income,Operating Earnings= $25,000 Investment charge= 20,000 = Residual income = $ 5,000,Investment capital= $100,000 Minimum return= 20% = Investment charge= $ 20,000,Investment centersminimum acceptablereturn,Residual Income,As a manager at Flower Co., would you inves

13、t the $100,000 if you were evaluated using residual income? Would your decision be different if you were evaluated using ROI?,Residual income encourages managers to make profitable investments that would be rejected by managers using ROI.,Residual Income(998),Economic value added tells us how much s

14、hareholder wealth is being created.,Economic Value Added,Economic Value Added,Economic value added is the annual after-tax operating profit minus the total annual cost of capital. Cost of capital is weighted-average after-taxcost of long-term borrowing and the cost of equity.,Debt,Equity,After-tax O

15、perating Income Investment charge = Economic value added,(Total assets current liabilities) Weighted-average cost of capital = Investment charge,After-tax cost oflong-term borrowingand the cost of equity,Economic Value Added,Economic Value Added,Economic value added can be improved in three ways . .

16、 . Increase profit without using more capital. Use less capital to earn the same amount of profit. Invest capital in high-return projects.,Balanced scorecard is a system for performance measurement that links a companys strategy to specific goals and objectives, provides measures for assessing progr

17、ess toward those goals, and indicates specific initiatives to achieve those goals.,Balanced Scorecard,Financial Perspective How do we lookto the firms owners?,Learning and Growth PerspectiveHow can we continuallyimprove and create value?,Business ProcessPerspective In which activities must we excel?,Customer Perspective How do our customers see us?,Balanced Scorecard(984),Vision and Strategy,Components of Management Compensation,Design Choices for Management Compensation,Should we rewardcurrent performance orfuture performance?,Should our rewards be