A limitation of ROI as a measure of performance is that
A) it is a single comprehensive figure examining only one facet of the firm.
B) it provides disincentive to use existing assets efficiently.
C) it provides an incentive to acquire new assets.
D) it is very sensitive to depreciation policy.
E) it does not provide the basis for common comparison.

Question

Quizplus · Accepted Answer

ROI is sensitive to depreciation policy, as it uses the net book value of assets in the denominator of the formula. Different depreciation policies can result in different net book values, leading to varying ROI figures. This can make it difficult to use ROI as a consistent measure of performance over time, and also limit its usefulness as a comparative measure with other companies.

A Limitation of ROI as a Measure of Performance Is