A Disadvantage of Evaluating Managers' Performance Based on ROI Is

question 37

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.
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:

Control

refers to having the power to direct the management and policies of a company, often through the ownership of a majority of shares.

Intrastate Issues

Matters or disputes confined within the borders of a single state, not involving or crossing state lines.

Issuers

Entities that create and distribute financial instruments like stocks, bonds, or notes to finance operations or expand capital.

Profits Within the State

Income generated within a specific state's geographical boundaries, subject to state taxation and regulation.