Return on invested Capital CHAPTER
8 CHAPTER Return on Invested Capital
Return on Invested Capital Importance of Joint Analysis Joint analysis is where one measure is assessed relative to another Return on invested capital(ROl) is an important joint analysis iL
• Joint analysis is where one measure is assessed relative to another • Return on invested capital (ROI) is an important joint analysis Return on Invested Capital Importance of Joint Analysis
Return on Invested Capital ROI Relation .ROI relates income, or other performance measure to a companys level and source of financing Rol allows comparisons with alternative investment opportunities riskier investments are expected to yield a higher ROI .ROI impacts a companys ability to succeed, attract financing, repay creditors, and reward owners
Return on Invested Capital ROI Relation •ROI relates income, or other performance measure, to a company’s level and source of financing •ROI allows comparisons with alternative investment opportunities •Riskier investments are expected to yield a higher ROI •ROI impacts a company’s ability to succeed, attract financing, repay creditors,and reward owners
Return on Invested Capital Application of Rol ROI is applicable to: evaluating (2) managerial assessing effective profitability ness (3) (4) earnings planning and forecasting control
Return on Invested Capital Application of ROI (1) evaluating managerial effectiveness (2) assessing profitability (3) earnings forecasting (4) planning and control ROI is applicable to:
Return on Invested Capital Evaluating Managerial Effectiveness Management is responsible for all company actIvities ROI is a measure of managerial effectiveness in business activities RoI depends on the skill, resourcefulness, ingenuity, and motivation of management
Return on Invested Capital Evaluating Managerial Effectiveness • Management is responsible for all company activities • ROI is a measure of managerial effectiveness in business activities • ROI depends on the skill, resourcefulness, ingenuity, and motivation of management