Which term measures operating performance as net income divided by total investment?

Which term measures operating performance as net income divided by total investment?

• A. ROI
• B. Cost-benefit analysis
• C. Inherent risk
• D. Residual risk

Answer: (A)

Return on Investment measures operating performance by comparing the profit earned to the amount invested. It shows how efficiently invested capital generates earnings, expressed as net income divided by total investment (often as a percentage). This direct profitability ratio lets you compare different initiatives or projects based on how well they convert resources into profit. In contrast, cost-benefit analysis weighs costs and benefits to decide if an option is worthwhile, not a pure profitability ratio. Inherent risk and residual risk describe risk levels before and after controls, not performance metrics.