Common short-term financial performance measures include

• divisional profits or segment margin, which is

>■ calculated as segment sales minus (direct variable expenses and avoidable fixed expenses).

>- used to assess whether segmental profitabil¬ ity goals were achieved.

• cash flow (by segment or responsibility unit), which is

>- calculated as cash provided (used) from op¬ erating activities, investing activities, and (if appropriate) financing activities.

>- used to assess the ability of the responsibil¬ ity unit to be profitable, have sufficient liquidity to pay debts as they arise, adapt to adverse conditions, and undertake new commitments.

• return on investment, which is calculated as profit margin multiplied by as¬ set turnover.

»- used to assess the generation of income rel¬ ative to the resources used to producte that income.

• residual income, which is

>- calculated as income earned above a target rate on the unit’s asset base.

used to assess the generation of income rel¬ ative to the resources used to produce that income.

• economic value added, which is

>- calculated as after tax-profits above tire mar¬ ket value of capital invested multiplied by the cost of capital percentage.

used to assess the generation of income rel¬ ative to the market value of the resources used to produce that income. LO.1