Page 186 - 5.2 i. Manac Costing ITC Summarised Notes
P. 186
PERFORMANCE MEASUREMENT
Return on Investment (ROI)
Formula:
Long term loans are
normally arranged by
Controllable profit before interest & Tax head office and therefore
Controllable investment not under the managers
control.
Where controllable investment = non current assets + net working capital.
Thus ROI forces the investment centre manager:
• to control operating expenses, and
• to control the investments in assets.
ROI can be manipulated in the following ways:
• reduce expenses, or
• reduce operating assets.
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