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.

Question

Quizplus · Accepted Answer

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.

If a Company Contains a Number of Investment Centers of Differing