Kevin is an employee in the finance department at Easy Trader Co. and is performing some financial analysis on their current year's performance. Before he can begin looking at a variety of nonfinancial factors, including customer conversion rates and internal promotion scores, he will need to evaluate some financial performance measures. Which of the following provides the most accurate rationale for evaluating Residual Income?
A) Comparing a company's return in relation to income for year-to-year analysis
B) Determining a company's ability to mark-up from cost
C) Evaluating a company's actual costs to its budgeted expectations
D) Evaluating income earned beyond the minimum required return on investment

Question

Quizplus · Accepted Answer

This question requires familiarity with financial performance measures and an understanding of when it is appropriate to use each kind. Choice D is correct since this is the most accurate reason for why Kevin should evaluate the Residual Income. The remaining choices provide either an incorrect summary of Residual Income or provide the rationale for evaluating a different measure.

Kevin Is an Employee in the Finance Department at Easy