Divisional performance measurement is a structured approach that allows the central management of an organization to assess the performance of its individual divisions. This is essential in a divisionalized structure to ensure each division is contributing effectively to the organization's overall goals. Common methods include Return on Capital Employed (ROCE), Residual Income (RI), and the profit-to-sales ratio.
Residual income is the net income generated by a subsidiary or division after accounting for the costs associated with the capital it uses. This metric is particularly useful in determining the profitability and efficiency of investment projects within larger organizations.
