The following information is extracted from the annual report of Wolseley plc. Finance objectives (extract) To deliver
Question:
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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