Which one of the following is not a limitation shared by residual income (RI) and return on investment (ROI) divisional performance measures?
A) They are both short-term performance indicators.
B) They both may fail to capture significant value-creating activities of the organization.
C) They are both subject to short-term manipulation on the part of divisional managers.
D) Both are subject to a number of measurement issues that complicate their use in practice.
E) They both relate, in percentage terms, earnings to the level of investment in each division.

Question

Quizplus · Accepted Answer

Residual Income (RI) is an absolute measure in currency terms, showing the actual amount of income generated above a minimum required return, while Return on Investment (ROI) is a relative measure expressed as a percentage of earnings to the level of investment. Thus, they do not both relate earnings to the level of investment in percentage terms.

Which One of the Following Is Not a Limitation Shared