Which of the following is the most appropriate and comprehensive short-term financial-performance indicator for an investment center that is a division of a larger business entity?
A) Residual income (RI).
B) Operating income, pre-tax.
C) Return on equity (ROE).
D) Operating income, after-tax.
E) Return on sales (ROS).

Question

Quizplus · Accepted Answer

Residual income (RI) is the most appropriate and comprehensive short-term financial-performance indicator for an investment center because it measures the absolute amount of profit that exceeds the minimum required return on a company's operating assets, taking into account both the operating income and the cost of capital for the investment center. This provides a more complete picture of the investment center's performance in contributing to the overall company's value.

Which of the Following Is the Most Appropriate and Comprehensive