Q10, Nov 2011, Ananya Division M, P and C of Ananya Ltd.

are respectively engaged in activities of Marketing, Production and Marketing & Production Combined. Control is through return on investment. Fixed assets are depreciated on straight line basis (10 years). Performance is: M Profit before depreciation and operating expenses Current Assets Fixed Assets 400 200 Nil P 400 200 1000 C 400 200 500

The operating expenses of Divisions M, P and C are Rs. 200 lacs, Rs. 100 lacs and Rs. 150 lacs respectively. 1 Compare ROI for each Division 2 Analyse and comment on relationship, if any, between ROI achieved and Divisional activities.

Q10, Nov 2011, Ananya Ltd. Div M Profit before depreciation and operating expenses Operating Expenses Depreciation Operating Profit Current Assets Fixed Assets Total Assets Return on Investment 400 200 0 200 200 0 200 100.00%

ADM Copy Div P 400 100 100 200 200 1000 1200 16.67% Div C 400 150 50 200 200 500 700 28.57%

10%

Comments: 1 ROI of Div M is highest at 100% , main reason being there are no fixed assets 2 ROI of Div P is lowest at 16.67% , main reason being that it has to invest in large amounts in fixed assets - 5 times the current assets 3 ROI of Div C is midway at 28.57% , main reason being that while it has to invest in fixed assets to the extent of 2.5 times the current assets, it is also partly receiving the benefits of marketing activities where the investment in fixed assets is negligible. 4 The above results show the relationship between the ROI and the activities that the Division performs.