Indigo Plc is organised into autonomous divisions along regional lines. Each divisional manager is responsible for sales, cost of operations, the purchasing and financing of divisional assets, and the management and control of working capital. The general manager (operations) will retire in July 2021. A review of the performance, attitudes and skills of several management employees has been undertaken and interviews with qualified outside candidates have also been held. The selection committee has narrowed the choice of a new general manager down to Candidate A (manager of Division South) and Candidate B (manager of Division North). Both candidates were appointed as divisional managers in late 2015. Candidate A had been the assistant manager of Division South for the four years prior to the appointment as that division’s manager. Candidate B had served as assistant manager of Division Central before being appointed to the present post. Candidate B took over Division North, newly formed in 2015, when its first manager left to join a competitor. The financial results of their performance in the past three years are reported below. Table 2: Financial performance results Division South Division North 2017 2018 2019 2017 2018 2019 (000s omitted) (000s omitted) (000s omitted) (000s omitted) (000s omitted) (000s omitted) Estimated market size for division’s products 10,000 12,000 13,000 5,000 6,000 6,500 Divisional Sales 1,000 1,000 1,210 450 600 750 Variable costs 300 320 345 135 175 210 Other operating costs 675 730 770 310 400 480 Total costs 975 1,050 1,115 445 575 690 Net profit 25 -50 95 5 25 60 Assets 330 340 360 170 240 300 Liabilities 103 105 115 47 100 130 (a) Calculate the return on investment (ROI) of each division for 2017, 2018 and 2019. Use net asset as investment in your ROI calculations. (b) Whether return on investment (ROI) is an appropriate measure for evaluating the performance of both divisional managers? (c) Propose additional measures that could be used for evaluating the performance of both divisions and their managers.
Indigo Plc is organised into autonomous divisions along regional lines. Each divisional manager is responsible for sales, cost of operations, the purchasing and financing of divisional assets, and the management and control of
The general manager (operations) will retire in July 2021. A review of the performance, attitudes and skills of several management employees has been undertaken and interviews with qualified outside candidates have also been held. The selection committee has narrowed the choice of a new general manager down to Candidate A (manager of Division South) and Candidate B (manager of Division North).
Both candidates were appointed as divisional managers in late 2015. Candidate A had been the assistant manager of Division South for the four years prior to the appointment as that division’s manager. Candidate B had served as assistant manager of Division Central before being appointed to the present post. Candidate B took over Division North, newly formed in 2015, when its first manager left to join a competitor. The financial results of their performance in the past three years are reported below.
Table 2: Financial performance results
| Division South | Division North | |||||
| 2017 | 2018 | 2019 | 2017 | 2018 | 2019 | |
| (000s omitted) |
(000s omitted) |
(000s omitted) |
(000s omitted) |
(000s omitted) |
(000s omitted) |
|
| Estimated market size for division’s products | 10,000 | 12,000 | 13,000 | 5,000 | 6,000 | 6,500 |
| Divisional Sales | 1,000 | 1,000 | 1,210 | 450 | 600 | 750 |
| Variable costs | 300 | 320 | 345 | 135 | 175 | 210 |
| Other operating costs | 675 | 730 | 770 | 310 | 400 | 480 |
| Total costs | 975 | 1,050 | 1,115 | 445 | 575 | 690 |
| Net profit | 25 | -50 | 95 | 5 | 25 | 60 |
| Assets | 330 | 340 | 360 | 170 | 240 | 300 |
| Liabilities | 103 | 105 | 115 | 47 | 100 | 130 |
(a) Calculate the
(b) Whether return on investment (ROI) is an appropriate measure for evaluating the performance of both divisional managers?
(c) Propose additional measures that could be used for evaluating the performance of both divisions and their managers.
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