Cop Waste Management

V. Malleret - C. Mendoza 1
Fixed, current and net assets

Subsidiary 1 Subsidiary 2 Subsidiary 3

Fixed assets 5 000 000 2 000 000 10 000 000
- Accumulated
(3 600 000) (1 300 000) (4 000 000)
depreciation
= Net fixed assets 1 400 000 700 000 6 000 000
Accounts receivables 300 000 1 600 000 1 200 000
Inventories 90 000 0 100 000
- Accounts payable (140 000) (200 000) (400 000)
= Working Capital 250 000 1 400 000 900 000
Net operating assets 1 650 000 2 100 000 6 900 000

V. Malleret - C. Mendoza 2
Fixed, current and net assets

Subsidiary 1 Subsidiary 2 Subsidiary 3

Fixed assets 5 000 000 2 000 000 10 000 000
AP have to be
- Accumulated
(3 600 000) (1 deducted
300 000) from(4 000 000)
depreciation current assets as
= Net fixed assets 1 400 000 getting
700 credit
000 from 6 000 000
suppliers is a source
Accounts receivables 300 000 1 600 000 1 200 000
of cash for a
Inventories 90 000 0
company 100 000
- Accounts payable (140 000) (200 000) (400 000)
= Working Capital 250 000 1 400 000 900 000
Net operating assets 1 650 000 2 100 000 6 900 000

V. Malleret - C. Mendoza 3
 ROI & RI - Calculation

Subsidiary 1 Subsidiary 2 Subsidiary 3

Operating
300 000 100 000 1 120 000
income
Net operating
1 650 000 2 100 000 6 900 000
assets
300 000/1 650 000
ROI
= 18 %  5%  16 % 
300 000
RI - (1 650 000 x 10 % ) (110 000)  430 000 
= 135 000 

V. Malleret - C. Mendoza 4
ROI & RI - Comparison

 ROI & RI have the same “meaning”; For a BU,

The objective ROI ≥12 % is equivalent to
The objective RI≥0 with WACC = 12 %
 RI is not a ratio: easier to handle in companies for
additions, comparisons
 Ranking of BU’s can vary with the 2 performance
criteria
 What is wrong with Sub.2?

V. Malleret - C. Mendoza 5