An investment center is a subunit of a company that is responsible for generating revenue, controlling costs, and investing in assets. It is charged with earning income consistent with the amount of assets invested. Most company divisions can be considered profit or investment centers. Performance is often evaluated using return on investment (ROI), which considers income earned and capital invested. ROI can be broken down into profit margin and investment turnover. Residual income and economic value added are also used, as they consider the minimum acceptable return and invested capital.

1. INVESTMENT CENTER
PRESENTED TO: PRESENTED BY:
DR. RUCHI MA’AM JASHANDEEP SINGH
B.COM(HONS), 17193143

2. INVESTMENT CENTRE
 An investment center is a subunit
that is responsible for generating
revenue, controlling costs, and
investing in assets.
 An investment center is charged
with earning income consistent
with the amount of assets
invested in the segment.
 Most divisions of a company can
be treated as either profit centers
or investment centers.

4. METHODS TO EVALUATE THE
PERFORMANCE OF INVESTMENT
CENTRE1. ROI has a distinct advantage over income as a
measure of performance since it considers both
income (the numerator) and investment (the
denominator).
ROI = Net profit
Invested capital
ROI = Net profit
Sales
x
Sales
Invested capital
Profit Margin Investment Turnover
The breakdown of the formula shows that managers can increase
return by more profit and/or generating more sales for each
investment dollar.
*100
*100

5.  Residual income is useful in overcoming some of the disadvantages of the rate of
return on investment.
 Residual income is the excess of income from operations over a minimum
acceptable income from operations.
 The minimum acceptable income from operations is computed by multiplying the
company minimum rate of return by the invested assets.
 The major advantage of residual income as a performance measure is that it
considers both the minimum acceptable rate of return, invested assets, and the
income from operations for each division.
EVA=(Net operating profit after tax)-(Cost of capital* capital invested)
Or, EVA= Capital employed(Return on investment-cost of capital)
Or, EVA= Capital employed(ROI- Cost of capital)
Economic Value Added/Residual
Income Approach