Suppose a company evaluates divisional performance using both ROI and residual income.The company's minimum required rate of return for the purposes of residual income calculations is 12%.If a division has a residual income of $6,000, then its ROI is less than 12%.

Residual income is calculated by subtracting the product of the minimum required rate of return (in this case, 12%) on the investment from the actual income. A positive residual income, like the $6,000 mentioned, indicates that the division is earning more than the minimum required rate of return, but it does not directly indicate whether the ROI percentage is higher or lower than 12%. ROI is calculated based on the division's net income relative to its assets, which is a separate measure from how much income exceeds the company's minimum required rate of return.