ACCA Financial Management (F9) Certification Practice Exam

Disable ads (and more) with a membership for a one time $4.99 payment

Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

Practice this question and more.

What is the primary objective of using financial models like ARR and ROI?

To maximize costs
To evaluate investment performance
To minimize the cash flow
To assess marketing effectiveness

The correct answer is: To evaluate investment performance

The primary objective of using financial models such as Accounting Rate of Return (ARR) and Return on Investment (ROI) is to evaluate investment performance. These models provide insights into the profitability and efficiency of investments, helping businesses and investors make informed decisions regarding capital allocation. ARR calculates the average annual profit expected from an investment relative to the initial investment cost, offering a straightforward method to assess potential returns. Similarly, ROI measures the gain or loss generated relative to the investment cost, making it a versatile tool for comparing various investments or projects. By focusing on evaluating how effectively an investment generates returns, these financial models help organizations identify the most lucrative opportunities and avoid poor-performing investments, thus enhancing overall financial performance. This emphasis on performance evaluation is crucial for strategic decision-making in finance and investment management.