Asked by ritika sharma on Jul 27, 2024
Verified
If a company contains a number of investment centers of differing sizes, return on investment (ROI) should be used rather than residual income to rank the financial performance of the divisions.
Residual Income
The income that remains after deducting all required expenses and cost of capital from operating income.
Investment Centers
Segments within a company for which managers have responsibility over cost, revenue, and investment decisions.
- Familiarize with the application and influence of return on investment (ROI) in determining managerial efficiency.
Verified Answer
MA
Maryam AdepitanAug 01, 2024
Final Answer :
True
Explanation :
ROI is a better measure for comparing the financial performance of investment centers of different sizes because it calculates the efficiency of the investment. Residual income may favor larger centers due to their ability to generate more income in absolute terms, but this does not necessarily mean they are more efficient or profitable.
Learning Objectives
- Familiarize with the application and influence of return on investment (ROI) in determining managerial efficiency.
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