tailieunhanh - Essentials of Strategic Management 5th Edition_8

Tham khảo tài liệu 'essentials of strategic management 5th edition_8', kinh doanh - tiếp thị, quản trị kinh doanh phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | uses the division s assets to generate profits. It is a common measure that can be compared with other companies and business units. It provides an incentive to use existing assets efficiently and buy new ones only when it would increase profits. Nevertheless ROI has several distinct limitations. Although ROI gives the impression of objectivity and precision it can be easily manipulated. For example ROI is very sensitive to depreciation policy and book value of assets both of which can be manipulated by self-serving managers. A given amount ofprofts provides a greater ROI fgure if the book value ofthe assets is low than if it is high. Further it is difficult to set a transfer price the price at which one division sells its product to another. A more powerful division could force a less powerful one to sell its product at a lower price than it would get on the open market thus reducing the selling division s ROI and increasing that of the purchasing division. Since ROI can be calculated for the short run as well as for the long run there is a tendency to use it primarily for short-run purposes such as quarterly or annual bonuses thus driving out long-term strategic planning in favor of short-run tactical maneuvers. Earnings per share which involves dividing net earnings by the number of common stock shares also has the advantage of being used as one overall measure of corporate performance. Nevertheless it has several deficiencies as an evaluation of past and future performance. First because alternative accounting principles are available EPS can have several different but equally acceptable values depending on the principle selected for its computation. Second because EPS is based on accrual income the conversion of income to cash can be near term or delayed. Therefore EPS does not consider the present value of money. Return on equity ROE obtained by dividing net income by total equity the shareholders total investment in the corporation is another popular .