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Horngren'S Financial And Managerial Accounting
Found in: Page 1355

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Short Answer

What does ROI measure?

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

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Step by Step Solution

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.

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