ECONOMICS

Detailed explanation-1: -Three common measures used to evaluate the performance of investment centers are return on investment (ROI), residual income (RI), and extra value added (EVA). Operating income is income produced from daily activities and excludes items such as taxes, interest, and unusual gains and losses.

Detailed explanation-2: -Increase Revenues One way to increase your return on investments is to generate more sales and revenues or raise your prices. If you can increase sales and revenues without increasing your costs, or only increase your costs enough to still provide a net gain in profits, you’ve improved your return.

Detailed explanation-3: -Investment center managers are usually evaluated using return on investment (ROI) or residual income, as discussed later in this chapter.

Detailed explanation-4: -Return on Investment (ROI) A calculation of the monetary value of an investment versus its cost. The ROI formula is: (profit minus cost) / cost. If you made $10, 000 from a $1, 000 effort, your return on investment (ROI) would be 0.9, or 90%.