MCS case study(1).pptx

7/28/2019 MCS case study(1).pptx

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Case Study presentation on Quick TV


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Responsibility Centre

Cost Centre

Revenue Centre

Profit Centre

Investment Centre


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Cost Centre

A cost centre is a subunit that hasresponsibility for controlling costsbut not for generating revenues.

Most service departments (i.e.,maintenance, computer) areclassified as cost centers.

Production departments may becost centers when they simplyprovide components for anotherdepartment.


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Revenue Centre

In a revenue centre, output (i.e., revenue) is measured inmonetary terms, but no formal attempt is made to relateinput (i.e. expenses or cost) to output.

The main focus of managements efforts will be on revenuegenerated by it.

The sales department is an example for a revenue centre.


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Profit Centre

A profit centre is a subunit thathas responsibility of generatingrevenue and controlling costs.

The Profit centre evaluationtechniques include:

Comparison of current year

income with a target or budget. Relative performance evaluation

compares the center with othersimilar profit centers.


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Investment Centre

An investment centre is a subunit that isresponsible for generating revenue,controlling costs, and investing in assets.

An investment centre is charged withearning income consistent with theamount of assets invested in the segment.

Most divisions of a company can be treatedas either profit centers or investmentcentre.


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Contd..

Top managers of large companies evaluate their divisionsas investment centers. The manager of an investmentcenter is held accountable for the centers profit and the

capital invested to earn that profit.

Decentralized companies must create an incentive program tomaximize the goal congruence that business units have with thecompanys overall objectives.

An investment centeris a segment whose manager isresponsible not only for revenues and costs, but alsofor the investment required to generate profits


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Performance evaluation Criteria

Companies use four principal measures to evaluatedivisions: Income Return on Investment (ROI)

Residual Income (RI)

Economic Value Added (EVA)

Return on Equity [ROE]

Earnings [cash flows] divided by shareholdersequity [Balance sheet assets minus liabilities]

Economic Value Added [EVA]Cash Flows divided by Capital less the Cost of

Capital multiplied by Capital


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Return on Investment (ROI)

Earnings [cash flows] divided by assets

The most common investment center performance measure isreturn on investment.

or

or

ROIs drawback: it ignores the firms cost of raising capital.

Because of this, many managers prefer to use residual income

ROI = Income / Invested Capital

(Income / Sales Revenue) * (Sales Revenue / Invested Capital)

Sales Margin * Capital Turnover


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Residual Income

The imputed interest rate is the estimated interest charge set to

reflect the companys minimum required rate of return on invested

capital.

The drawback for residual income is that it can only be used to

compare investment centers of similar size or incorporated in favor of

the larger investment center.

RI = Investment Centers Profit -(Investment Centers Invested Capital * Imputed Interest Rate)


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Economic Value Added (EVA)

EVA measures the value created from investments.

Returns on capital should be defined in terms of cash flowsresulting from investments.

The cost of capital is the weighted average of the costs of thedifferent financing instruments used to finance investments.

It construct to the net present value of a project in capitalbudgeting.


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Case study

Quick TVa Newcastle-based company developed a web-based

service which enables businesses to create on-line interactivecontent and videos using cutting edge technology.

According to Tod Yeadon, Quick TV (MD) - Business websiteswith video content attract more customers and drive higher sales.


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Contd..

Recent statistics show that companies using online videos canwitness increases of up to 300% in sales and enquiries.

The company's new online service will enable businesses todevelop a single video or adapt existing video content, buildingand customising its interactive elements for use on multiple sites.

Businesses with existing TV adverts will be able to convertthem for the internet by re-mixing, licensing new footage andintroducing interactive features including voting and RSS feeds.


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Role of Business link

- Business link are a well known brand both nationally andregionally.

- Business Link is helping small and growing companies meet the

potential challenges ahead.

Quick TV benefited from a range practical support

Including advice and guidance on recruitment.

Providing base for exploring new market


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Analysis of the case

How to combat The Credit Crunch for theFirm in order to attain the objective

Core difficulties..

Higher interest rates and a reduction in the availability offunds means that small firms may struggle to secure bankloans, as well as face a host of other difficulties.


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Defining a credit policy

Managing cash flow

Closely monitor changing market conditions

The Business health check can be used to analyse key areas,including finance and administration

Managing risk

An effective risk management

Conclusion


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Thank You

MCS case study(1).pptx

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