Q19RQ - Horngren'S Financial And Managerial Accounting

Question

What does ROI measure?

Step-by-Step Solution

Answer

ROI measures percentage return earned on the average total assets of the business entity. 

Step 1: Meaning of ROI

ROI, or return on investment, is a pivotal budgetary measurement that gauges an investment's benefit or loss about its starting outlay. It measures how effectively business’s utilize the assets. 

Step 2: Calculation of ROI

ROI is measured by dividing operating income by average total assets. Alternatively, profit margin ratio and asset turnover ratio can be multiplied to calculate it.