Projected Results to Meet Corporate Objectives Grout Inc. is a wholly owned subsidiary of Slait…

 
   

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Projected Results to Meet Corporate Objectives

Grout Inc. is a wholly owned subsidiary of Slait Co. The philosophy of Slait’s management is to

allow the subsidiaries to operate as independent units. Corporate control is exercised through the

establishment of minimum objectives for each subsidiary, accompanied by substantial rewards

for success and penalties for failure. The time period for performance review is long enough for

competent managers to display their abilities.

Each quarter the subsidiary is required to submit financial statements. The statements are

accompanied by a letter from the subsidiary president explaining the results to date, a forecast

for the remainder of the year, and the actions to be taken to achieve the objectives if the forecast

indicates that the objectives will not be met.

Slait management, in conjunction with Grout management, had set the objectives listed

below for the year ending September 30, 2009. These objectives are similar to those set in

previous years.

• Sales growth of 10%

• Return on stockholders’ equity of 20%

• A long-term debt-to-equity ratio of not more than 1.0

• Payment of a cash dividend of 50% of net income, with a minimum payment of at least

$500,000

Grout’s controller has just completed preparing the financial statements for the six months ended

March 31, 2009, and the forecast for the year ending September 30, 2009. The statements are presented

on the following page.

After a cursory glance at the financial statements, Grout’s president concluded that not all

objectives would be met. At a staff meeting of the Grout management, the president asked the

controller to review the projected results and recommend possible actions that could be taken

during the remainder of the year so that Grout would be more likely to meet the objectives.