2. -In some business units, the focus is
on profit as measured by the
difference between revenues and
expenses.
-In other business units, this profit is
compared with the asset employed in
earning it. Referred to as responsibility
center or profit center.
3. BALANCE SHEET
CURRENT ASSETS: CURRENT LIABILITIES7/5/2013
Cash 50 Accts. Payable 90
Receivables 150 Other current 110
Inventory 200 Total current liabilities 200
Total current assets 400
FIXED ASSETS: CORPORATE EQUITY 500
Cost 600
Depreciation -300
Book value 300
TOTAL ASSETS 700 TOTAL LIABILITIES & EQUITY 700
4. INCOME STATEMENT
Revenue 1000
Expenses, except depreciation 850
Depreciation 50 900
Income before taxes 100
Capital Charge (500x10%) 50
ECONOMIC VALUE ADDED 50
RETURN ON INVESTMENT
=100/ 500
=20%
5. CAPITAL CHARGE= required rate of
return identified by stock holders
ECONOMIC VALUE ADDED= income
before interest and taxes less capital
charge
RETURN ON INVESTMENT=
income/assets employed(corporate
equity)
