Question:
(Balanced scorecard; EVA; writing) Chesterville Manufacturing makes a variety of glass products having both commercial and household applications. One of its newest divisions, ColOptics, manufactures fiber optic cable and other high-tech products. Recent annual operating results (in millions) for ColOptics and two older divisions follow.
|
ColOptics
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Industrial Glass
|
Kitchenware
|
|
Sales
|
$500
|
$1,800
|
$1,500
|
|
Segment income
|
50
|
184
|
170
|
Chesterville Manufacturing uses economic value added (EVA) as its only segment performance measure. Clare Cole, CEO of Chesterville, posed some serious questions in a memo to the controller, Doug Larsen, after studying the operating results.
After pondering the memo and studying the operating results, Larsen passed the memo and operating results to you, his newest employee in the controller's office, and asked you to respond to the following questions:
a. Why would the use of EVA discourage a high-growth strategy?
b. Could the concept of the balanced scorecard be used to encourage a higher rate of growth in ColOptics? Explain.