Page 114 - MAC4861_2 Costing class slides part 2
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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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