Page 11 - Manac Costing Test 2 class slides - 3. Performance Measurement

PERFORMANCE MEASUREMENT

Return on Investment (ROI)

Formula:
Long term loans are
normally arranged by

Controllable profit before interest & Tax head office and therefore
not under the managers
Controllable investment 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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