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Return on Investment Cannot Be Used Effectively to Evaluate Profit

question 8

True/False

Return on investment cannot be used effectively to evaluate profit centres because it motivates managers to make suboptimal decisions from the viewpoint of the organizations' owners.


Definitions:

Capital Balance

The amount of funds contributed by owners or shareholders to a business, plus retained earnings and reduced by any withdrawals or distributions.

Asset Revaluation

The process of adjusting the book value of an asset to reflect its current market value.

Capital Balances

refers to the amount of money stakeholders have invested in a company, recorded in the equity section of the balance sheet.

Income

The money received, especially on a regular basis, for work or through investments.

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