Firms use these measures to evaluate whether the investment center
manager is meeting or exceeding performance expectations, and to
allocate available funds to divisions in the most profitable manner.

Return on Investment (ROI)
Return on investment (ROI) is a well-known method of assessing the
profitability of divisions.
ROI is a measure of profitability, as it relates profits to the size of the
investment made in the division.
This relative measure allows comparisons between divisions of different
sizes.
Return on investment
(
ROI
)
measures the gain or loss generated on an
investment relative to the amount of money invested. ROI is usually
expressed as a percentage and is typically used for personal financial
decisions, to compare a company's profitability or to compare the
efficiency of different investments.
However, ROI has its drawbacks.
Where it is used as the primary measure of performance for divisional
managers, there is a danger that it will lead to behaviour that is not really
consistent with the interests of the business overall.

Return on investment (ROI) is a measure of the profit generated
per Ghana cedi/dollar/Pounds/Euro of investment.
Return on investment (ROI) is a measure that investigates the
amount of additional profits produced due to a certain
investment.
ROI is considered to be superior to any other performance
measurement because it shows the effectiveness of the
manager in utilizing the assets at the manager’s disposal.
It is calculated as:
ROI
=
ROI
=
ROI
=
•

Note
When defining divisional profit for this ratio(ROI), the
purpose for which the ratio is to be used must be
considered.
The purpose could be for evaluating the performance of:
a divisional manager, the controllable profit is likely to be the most
appropriate;
a division, the divisional profit for the period is likely to be more
appropriate.
ROI is an important financial metric for:
asset purchase decisions (such as computer systems, machinery,
or service vehicles)
approval and funding decisions for projects and programs of
different types (for example marketing programs, recruiting
programs, and training programs)
traditional investment decisions (for example management of
stock portfolios or the use of venture capital).
•
Source: Drury, C. and El-Shishini, E., ‘Divisional performance measurement: an examination of potential
explanatory factors’, CIMA Research Report, August 2005, p. 32.

Various definitions can be used for divisional investment.
assets (non-current assets plus current assets)
or the net assets (non-current assets plus current assets less
current liabilities).
In addition, non-current assets may be shown at their historic
cost, or their historic cost less accumulated depreciation, or
on some other basis, such as current market value.


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