Asked by Mozes Leveille on Jul 28, 2024
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Some managers believe that residual income is superior to return on investment as a
means of measuring performance, since it encourages the manager to make investment decisions that are more consistent with the interests of the company as a whole.
Residual Income
The income that an entity generates after accounting for all operational and capital expenses, often used to assess the profitability of investment centers within a business.
Return on Investment
A measure of the profitability of an investment, calculated as the ratio of net profits to the initial cost of the investment.
Investment Decisions
The process of making choices about where to allocate resources and capital in order to achieve the highest returns.
- Familiarize oneself with the notion and arithmetic of residual income.
- Evaluate the use and implications of various performance measures including ROI, residual income, and turnover.
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Learning Objectives
- Familiarize oneself with the notion and arithmetic of residual income.
- Evaluate the use and implications of various performance measures including ROI, residual income, and turnover.
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