Managerial performance is often evaluated using ROI and economic value added.

a. Return on investment (ROI) is made up of two elements, margin and turnover.

b. Margin is defined as operating income \(\div\) sales.

c. Turnover is defined as sales \(\div\) operating assets.

d. The use of ROI for performance evaluation encourages managers to maximize operating income while at the same time minimizing the level of assets employed.

e. Economic value added is calculated by subtracting the cost of invested capital from operating income.

f. Economic value added motivates managers to invest in projects that produce a return above the cost of invested capital.