Mend: A Case in Cost-Volume-Profit Analysis

This brief case deals with the issue of how companies arrive at financial return targets for their operating managers. Naert's CEO has determined that the company needs to generate a Return on Equity (ROE) of 16% if it's to be competitive in the capital markets. His CFO, Mr. Van Roost, is tasked with transmitting this goal to the company's operating managers.

This workbook focuses on three international companies in the automotive manufacturing industry. The industry write-up gives an overview of the industry; growth development, as well as cost cutting measures in response to the prevailing economic situation. Similarly, the company write-ups are a general overview of the history and business segments within each company.

This technical note addresses the key issues involved in designing executive compensation systems in accordance with value-based management principles. It focuses on the use of Economic Value Added as a means of aligning managerial and shareholder agendas. The potential advantages of this approach are examined in detailed, as are the potential drawbacks and limitations.