CMA Intermediate · Management Accounting · Divisional Performance Measurement
Division A of Vasudha Industries has operating profit of ₹18,00,000 and average capital employed of ₹90,00,000. What is its Return on Investment (ROI)?
ROI is 20%. It is computed by dividing divisional operating profit of ₹18,00,000 by average capital employed of ₹90,00,000, which gives 0.20, or 20 percent. ROI expresses profit as a percentage of the investment used by the division.
- A5%
- B20%Correct
- C18%
- D25%
Explanation
ROI = Operating profit / Capital employed = 18,00,000 / 90,00,000 = 20%. The 5% option inverts the ratio (90/18 misread as 1/18 scale), and 18% takes the profit figure as a percentage without dividing by capital.
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