A Disadvantage of Evaluating Managers' Performance Based on ROI Is

question 158

Essay

A disadvantage of evaluating managers' performance based on ROI is that it can lead to undesirable managerial actions.Residual income can overcome many of the problems of ROI.
Required:
a.Define residual income and explain how it is calculated.
b.What are the shortcomings of residual income? Give an example of when ROI is a better measure than residual income.

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Definitions:

Movements of Workers

Refers to the geographical or occupational mobility of labor, which includes migration or changes in jobs within or across industries.

Increases in Productivity

An improvement in the efficiency of producing goods and services, often resulting in more output for the same amount of input.

Standards of Living

The range of opulence, leisure, physical goods, and necessary provisions available to a specific group based on economic status or location.

Earnings

The amount of profit that a company produces during a specific period, which can also refer to an individual’s total income and benefits acquired through employment.