Case Study presentation on Quick TV

Responsibility Centre

Cost Centre Revenue Centre Profit Centre Investment Centre

Cost Centre
A cost centre is a subunit that has

responsibility for controlling costs but not for generating revenues.

Most service departments (i.e.,

maintenance, computer) are classified as cost centers.

Production departments may be

cost centers when they simply provide components for another department.

Revenue Centre
In a revenue centre, output (i.e., revenue) is measured in

monetary terms, but no formal attempt is made to relate input (i.e. expenses or cost) to output.
The main focus of managements efforts will be on revenue

generated by it.
The sales department is an example for a revenue centre.

Profit Centre
A profit centre is a subunit that

has responsibility of generating revenue and controlling costs.

The Profit centre evaluation

techniques include:
Comparison

of current year income with a target or budget. Relative performance evaluation compares the center with other similar profit centers.

Investment Centre
An investment centre is a subunit that is

responsible for generating revenue, controlling costs, and investing in assets.

An investment centre is charged with

earning income consistent with the amount of assets invested in the segment.
Most divisions of a company can be treated

as either profit centers or investment centre.

Contd..
Top managers of large companies evaluate their divisions as investment centers. The manager of an investment center is held accountable for the centers profit and the capital invested to earn that profit.
Decentralized companies must create an incentive program to maximize the goal congruence that business units have with the companys overall objectives.

An investment center is a segment whose manager is responsible not only for revenues and costs, but also for the investment required to generate profits

Performance evaluation Criteria

Companies use four principal measures to evaluate divisions: Income Return on Investment (ROI) Residual Income (RI) Economic Value Added (EVA)
Return on Equity [ROE] Earnings [cash flows] divided by shareholders equity [Balance sheet assets minus liabilities]

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

Return on Investment (ROI)

Earnings [cash flows] divided by assets
The most common investment center performance measure is

return on investment.

ROI = Income / Invested Capital

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

Sales Margin * Capital Turnover ROIs drawback: it ignores the firms cost of raising capital.
Because of this, many managers prefer to use residual income

Residual Income
The imputed interest rate is the estimated interest charge set to

reflect the companys minimum required rate of return on invested capital.

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

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.

Economic Value Added (EVA)

EVA measures the value created from investments. Returns on capital should be defined in terms of cash flows

resulting from investments.

The cost of capital is the weighted average of the costs of the

different financing instruments used to finance investments.

It construct to the net present value of a project in capital

budgeting.

Case study

Quick TV a Newcastle-based company developed a web-based service which enables businesses to create on-line interactive content and videos using cutting edge technology.

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

Contd..
Recent statistics show that companies using online videos can witness increases of up to 300% in sales and enquiries. The company's new online service will enable businesses to develop a single video or adapt existing video content, building and customising its interactive elements for use on multiple sites. Businesses with existing TV adverts will be able to convert them for the internet by re-mixing, licensing new footage and introducing interactive features including voting and RSS feeds.

Role of Business link

- Business link are a well known brand both nationally and regionally. - 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

Analysis of the case

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

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

Conclusion
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

Thank You