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MANAGEMENT CONTROL SYSTEM

PRESENTATION TOPIC MEASURING ASSETS EMPLOYED APPLICATION OF MCS IN

SERVICE ORGANIZATION & PROPRIETARY ORGANIZATIONS.


BY

VIJAY AUTI AJAY BAIT RAJU YADAV PARAG SINGH

MCS

Is the process of evaluating, monitoring and controlling the various sub-units of the organization so that there is effective and efficient allocation and utilization of resources in achieving the predetermined goals.

MEASURING ASSETS EMPLOYED

Meaning

Investment center have some problem regarding how to measure the assets employed they have to decide the assets to be included, the value of fixed assets as well as current assets , the depreciation method to be used for fixed assets and which assets to be allocated and which liabilities are to be allocated.

INTRODUCTION
In some business units, the main focus is on profit. In other business unit, profit is compared with the assets employed.

However, there are so many problems involved in measuring the assets employed in a profit centre.

PURPOSE FOR MEASURING ASSETS EMPLOYED

To provide information that is useful in making decision about assets employed To motivate managers to make these decision that are in the best interest in the company. To measure the performance of the business unit.

STRUCTURE OF THE ANALYSIS


Two ways of relating profit to assets employed

Return on Investment ( ROI ) ROI is a ratio. The numerator is income, as reported on the income statement. The denominator is assets employed. Economic Value Added EVA is a amount, rather than a ratio. It is found by subtracting a capital charge from the net operating profit. This capital charge is found multiplying the amount of assets employed by a rate.

EVA is conceptually superior to ROI. It is clear from surveys that ROI is more widely used in a business rather than EVA.

MEASURING ASSETS EMPLOYED


The Assets To Be Included CASH RECEIVABLES INVENTORIES WORKING CAPITAL PROPETY, PLANT AND EQUIPMENT LEASED ASSETS

EVA v/s ROI


Most of the companies employing investment centers evaluate business units on the basis of ROI rather than EVA. There are three apparent benefits of an ROI measure.

1. Comprehensive measure in that anything that affects financial statements is reflected in this ratio.
2. It is simple to calculate, easy to understand, and meaningful sense. 3. It is a common denominator that may be applied to any organizational unit responsible for profitability, regardless of size or type of business.

EVA v/s ROI


The EVA approach has some inherent advantages. There are four compelling reasons to use EVA over ROI. 1. With EVA all business units have the same profit objective for comparable investments. 2. Decisions that increase a centres ROI may decrease its overall profits. If an investment centres performance is measured by EVA, investments that produce a profit in excess of the cost of capital will increase EVA and therefore be economically attractive to the manager. 3. Different interest rate may be used for different types of assets. 4. In contrast to ROI, has a stronger positive correlation with changes in a companys market value.

APPLICATION OF MCS
SERVICE ORGANIZATION PROPRIETARY ORGANIZATION

SERVICE ORGANIZATION
Service sector organization are those organization which provide services to the member and the society. The organization that produce and market intangible service are also known as service organizations. E.g. Hospitals, Hotels, etc

MCS in SERVICE ORGANIZATION


Strategic planning Budget preparation Analyzing financial performance reports Performance measurement

PROPRIETARY ORGANIZATION

Proprietary organization are those organizations which run or operated by Single person or Group of persons.

MCS in PROPRIETARY ORGANIZATION


Strategic planning Budgeting Pricing

Operation control
Performance measurement