A dollar amount equal to the operating income of a division less a charge for the level of investment in the division is called:
A) Operating profit after tax.
B) Return on investment (ROI).
C) Earnings from continuing operations.
D) Return on equity (ROE).
E) Residual income (RI).

Question

Quizplus · Accepted Answer

Residual income (RI) is the dollar amount equal to the operating income of a division less a charge for the level of investment in the division. It is a measure of the profitability of a division after considering the cost of the division's assets and the cost of capital. ROI (B) is a ratio that calculates the return earned on an investment relative to the investment’s cost. Operating profit after tax (A) is the excess of revenues over expenses, income taxes, and interest expenses. Earnings from continuing operations (C) refers to a company's net earnings from its normal and recurring business operations, excluding one-time gains or losses from extraordinary items. ROE (D) measures a company's profitability by expressing its net income as a percentage of its equity.

A Dollar Amount Equal to the Operating Income of a Division