Learning Objective 24-4
1) Companies evaluate investment centers using the same measures as the profit centers.
2) Operating income alone does not indicate how efficiently a segment is using its assets.
3) Return on investment focuses on net income in the numerator of the ratio.
4) Managers of investment centers are responsible not only for generating profits but also to ensure the efficient use of assets of the investment centers.
5) To adequately evaluate an investment center's financial performance, summary performance measures that include both the division's operating income and its assets are required.
6) Return on Investment (ROI) measures the profitability of an investment center, not efficiency.
7) The Return on Investment (ROI) formula focuses on the amount of operating income earned before other revenue/expense items such as interest expense.
8) Residual Income (RI) considers both the division's operating income and its average total assets. In addition, it also incorporates another piece of information known as top management's target rate of return.
9) The return on investment of a company is a measure of profitability and efficiency.
10) Residual Income (RI) compares the division's actual operating income with the minimum operating income expected for the given size of the division's average total assets.