Explore BrainMass

Explore BrainMass

    Residual Income (RI) be used to overcome ROI drawbacks

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    ROI is a useful performance measure for divisions' profitability As it is based on comparing profit with the investment value it is possible to be affected by depreciation. When we deduct the depreciation charges, the investment value goes down thus the ROI will increase even if profits remain the same.

    What other drawbacks we can identify in the use of ROI as a performance measure of divisions?
    How Residual Income (RI) can be used to overcome some of ROI's drawbacks?

    © BrainMass Inc. brainmass.com June 4, 2020, 1:40 am ad1c9bdddf
    https://brainmass.com/business/accounting/residual-income-overcome-roi-drawbacks-413337

    Solution Preview

    How Residual Income (RI) can be used to overcome some of ROI's drawbacks?

    ROI is a useful performance measure for divisions' profitability as it is based on comparing profit with the investment value it is possible to be affected by depreciation. When we deduct the depreciation charges, the investment value goes down thus the ROI will increase even if profits remain the same.

    What other drawbacks we can identify in the use of ROI as a performance measure of ...

    Solution Summary

    The solution discusses the Residual Income (RI) and the ways it can be used to overcome some of ROI's drawbacks.

    $2.19

    ADVERTISEMENT