Return On Investment: A Need For Special Purpose Informatio

Return on investment (ROI) is the accounting measure most often used to evaluate divisional performance. Two of the objectives of analyzing divisional performance are to measure the profitability of the resources invested in the division and to appraise the performance of the division management. The differences in these 2 purposes should control the selection of information and the choice of the bases of comparison. In addition, information used for evaluating the profitability of a division as an economic entity should include only those items of income and investment that result directly from the division's activities. This rate of return is called a separable rate of return. Further, information used for evaluating the performance of division managers should include only amounts that the division manager can influence significantly. Since the use of inappropriate bases of comparison can distort the information, comparing actual ROI to budgeted ROI is preferable.