An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

Question

Quizplus · Accepted Answer

This statement is true. ROI (Return on Investment) is calculated by dividing net operating income by the average operating assets. By increasing net operating income while reducing the investment in operating assets, the ROI can be increased. Thus, using ROI as a performance measure encourages managers to focus on maximizing profits while minimizing their investment in assets.

An Advantage of Using ROI to Evaluate Performance Is That