Investment center

Definition

An investment center is a business unit within an organization that is responsible for generating its own revenue and managing its own expenses, investments, and assets. The performance of an investment center is evaluated based on the return on investment (ROI) it achieves.

5 Must Know Facts For Your Next Test

1. Investment centers are evaluated on metrics such as ROI, residual income, and economic value added (EVA).
2. Managers of investment centers have authority over revenues, costs, and investments in assets.
3. Performance measurement in investment centers focuses on profitability and efficiency in asset utilization.
4. Investment centers are often used in decentralized organizations to promote accountability and performance.
5. Comparing different investment centers within the same organization can help identify the most profitable units.

Review Questions

• What performance metrics are commonly used to evaluate an investment center?
• How does an investment center differ from a cost or profit center?
• Why might a company choose to use investment centers in its organizational structure?

Related terms

Cost Center:

A unit within an organization that only manages costs and does not generate direct revenue.

Profit Center:

A business unit responsible for generating its own revenue and managing its own costs.

Residual Income:

The net operating income that an investment center earns above the minimum required return on its operating assets.