Why is return on investment better than income as a measure of performance for an investment center?
A)The calculation for income is determined by GAAP, while return on investment is adjusted to meet the needs of the company.
B)Return on investment is easier to calculate than income.
C)Return on investment considers the amount invested as well as the income.
D)Return on investment is forward looking, while income is backward looking.

Question

Quizplus · Accepted Answer

Return on investment takes into account both the income generated by the investment center and the amount invested in it, providing a more complete measure of performance than income alone. It also helps to ensure that managers are using resources efficiently and effectively to generate returns for the company. Both options A and D are incorrect because GAAP and forward-looking analysis do not apply to the comparison between return on investment and income as measures of performance. Option B is incorrect because return on investment involves multiple calculations and is not necessarily easier to calculate than income.

Why Is Return on Investment Better Than Income as a Measure