Consider the following three conditions: I. An increase in sales
II) An increase in operating assets
III) A reduction in expenses
Which of the above conditions provide a way in which a manager can improve return on investment?
A)Only I
B)Only I and II
C)Only I and III
D)Only II and III

Question

Quizplus · Accepted Answer

Return on investment (ROI) is calculated by dividing net income by total assets. Therefore, any action that leads to an increase in net income or a decrease in total assets will improve ROI. 
Condition I (an increase in sales) directly increases the numerator (net income) of the ROI formula, and Condition III (a reduction in expenses) directly decreases the numerator (net income) of the ROI formula. Condition II (an increase in operating assets), however, leads to an increase in the denominator (total assets) of the ROI formula, which will decrease the overall ROI. Therefore, only Conditions I and III provide a way in which a manager can improve ROI.

Consider the Following Three Conditions: I