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.

Return On Investment

A measure of the profitability of an investment, calculated as the net profit from the investment divided by the cost of the investment.

Residual Income

The amount of income that an individual or business has after all personal debts and expenses, including the cost capital, have been paid.

Financial Performance

An indicator of how well an entity can use assets from its primary mode of business and generate revenues.