Managerial Accounting

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Managerial Accounting
Reality Check Summaries
Professor Shin
Hee-Lim Shin
1001006

Reality Check – What’s your blog’s ROI?

Summary
ROI has been always one of the important factors to determine how profitable the business is doing. However, for until last few decades, ROI was only implementing to evaluate the hard assets like buildings and equipment. But in nowadays, many companies are using ROI to evaluate the investment in technology, such as blog. As a following example, it shows that ROI on a new software project is certainly one step toward gaining corporate approval and funding. This article states the example of General Motors’ FastLane blog (http://fastlane.gmblogs.com/). General Motors get benefits from the blog in terms of providing valuable customer insights and suggestion, and media coverage which increases brand awareness. In addition, the article explains the importance and the difficulties of calculating the ROI, mentioning still a lot of firms are struggling with how to get exact estimation of ROI. However, article is saying that although it is still hard work to many firms to calculate an exact ROI, this process is essential step as a company to start eCommerce investment.

Opinions
The fact in the article that the General Motor’s blog’s ROI was 99% in 2005 and 61% in 2006, indicate that company is investing more budget in 2006 compare to 2005. This result the blog with more complicates programs. Why is this happening? It is due to an increase of peoples’ internet usage, and they want more information through internet, the usage of blog is getting more diversity. Thus the increase of Company’s investment on developing new systems of blog is necessary in order to meet the customer’s need. Today, blogging has become an important tool in part of marketing, other than just a place to state the information about company’s products; it evolved into the place where the companies communicate with the customers back and forth, a tool to associate with customers intimately.

Reality Check – Putting EVA in the driver’s seat

Summary
The article portrays the importance and usage of EVA (Economic Value Added) in business. Since it was first introduced in 1980s, by Stern Stewart & Co, many companies across the globe regardless of its size and industries, acknowledges the importance of EVA and adopted as their preferred performance evaluation tool. Then the article specifically state three examples which are benefited by EVA. First, the Manitowoc Company, Inc. got advantage in decision making through EVA. The company bought a second shipyard and focused on ship repair using a smaller year-round work force, instead of divesting the division as originally planned, this decision end up selling its company-owned crane dealerships. On the other hand, Herman Miller, Inc. was able to increase the company’s optimal debt ratio, due to a result of EVA analysis that identify over investment in inventory and accounts receivable and figure out that debt capital was cheaper than equity capital. The last example was Rackspace Managed Hosting, although it was a relatively small website hosting firm, They used EVA to evaluate a potential two-year hosting contract with Morgan Stanley that would have provided $20 million in revenue. Through EVA analysis they found out 10% return the contract offered did not meet its 15% cost of capital, hence they declined the contract.

Opinions
In my opinion, even though EVA is a significantly developed tool compare with previous tools, there are few problems to compensate. One of the problems is that EVA evaluation of companies in particular industries can be maintain a high standard without putting much of efforts, such an industry that has special characteristic of one company dominating market. The company in such a circumstance can keep their high standard in EVA evaluation without need of any efforts or innovation. Hence, in this case, the company needs different evaluation...
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