accounting-Return on investment (ROI) measures the efficiency of a businessâs
Return on investment (ROI) measures the efficiency of a businessâs use of its operating assets and is the ratio of the businessâ net operating income to the value of its operating assets. That means that the higher the businessâs net operating income and the lower the value of the businessâs operating asset, the better its ROI. But, ROI can be misleading. For instance, many Internet businesses like Groupon and LinkedIn do not have much in the way of operating asset, but they have a lot of operating income. What does ROI disclose about how efficiently these kinds of businesses are operating? Are there better measures of how well managed companies like Groupon and LinkedIn are?
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