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Which of the following is used in the calculation of both return on investment and residual income?
A) Total shareholders' equity
B) Retained earnings
C) Invested capital
D) Cost of capital
Invested Capital
Funds provided by investors or lenders used by a company to acquire or upgrade physical assets like buildings and machinery.
Return On Investment
A performance measure used to evaluate the efficiency or profitability of an investment, calculated as the net profit divided by the cost of the investment.
Residual Income
The amount of income that exceeds the minimum rate of return expected on investments or capital.
- Attain an understanding of return on investment (ROI) and its contributing factors.
- Assess and clarify the principle of residual income, acknowledging its importance in the context of investment selections.
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Learning Objectives
- Attain an understanding of return on investment (ROI) and its contributing factors.
- Assess and clarify the principle of residual income, acknowledging its importance in the context of investment selections.
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