The following information is extracted from the annual report of Wolseley plc.

Finance objectives (extract)

To deliver an incremental return on gross capital employed at least 4%

in excess of the pre-tax weighted average cost of capital. In 2005 the Group’s return on capital was 19.1%, 7.2% ahead of our estimated pre-tax weighted average cost of capital of 11.9%.

Discussion points
1 What is the relative performance of the three divisions, in profitability and return on capital employed?
2 Using the company’s stated cost of capital, what is the relative performance based on residual income?

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Segmental analysis (extract) By class of business European Distribution North American Plumbing and Heating Distribution US Building Materials Distribution Parent and others Turnover 2005 m 4,638.4 4,370.4 2,248.9 11,257.7 2004 m 4,248.0 3,836.4 2,043.7 10,128.1 Operating profit 2004 m 242.9 2005 m 270.4 283.9 123.1 677.4 240.1 97.2 580.2 Net assets 2005 m 1,429.9 1,419.0 754.4 (52.5) 3,550.8 2004 m 1,190.2 1,147.0 591.3 6.3 2,934.8