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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

How does using the return on investment facilitate comparability between divisions of decentralized companies?

To determine

Return on investment (ROI): This financial ratio evaluates how efficiently the assets are used in earning income from operations. So, ROI is a tool used to measure and compare the performance of a units or divisions or a companies.

Formula of ROI:

Return on investment=Income from operationsInvested assets

Decentralized operations: In a company where the plans and operating decisions are delegated to the divisional managers, such a company is said to have decentralized operations.

To describe: The use of ROI in comparing the profitability between the divisions of decentralized companies

Explanation
ROI is used to evaluate the operating income earned from the resources invested. So, the profitability of all ...

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