Investment Center

manager’s
performance
• The investment center manager has the
authority to decide over which opportunity
should be considered.
• Performance is evaluated based on
results of decisions on investment.
COST-BENEFIT
Refers to the
amount used in Refers to the
undertaking the returns derived
opportunity from the
investments.
 RETURN ON
INVESTMENT
(ROI)
 Formula:

ROI = Segment Profit

Segment Investment
Formulas:
Increase in ROI = Increase in Profit
Decrease in Investment
Sample Problem:
Roy Corporation’s balance sheet indicated that the
company has P5,000,000 investment in operating assets.
During 2015, Roy earned P1,100,000 of net income on P11,
000,000 of sales.
Required:
1. Compute Roy’s margin for 2015.
2. Compute Roy’s turnover for 2015.
3. Compute Roy’s return on investment for 2015.
4. Recompute Roy’s ROI under each of the ff independent
assumptions
a. Sales increase from P5 million to P6 million and income
increases from P1,000,000 to P1,300,000.
b. Sales remain constant, costs and expenses decrease, and
income increases by 400,000.
c. The amount of investment is decreased by P400,000 without
affecting net income.
 The ROI and its Limitations
Company A Company B

ROI 20% 40%

Amount if investment P1 billion P1 million
Life of assets in years 15 years 2 years