A primary limitation of return on investment (ROI) as a performance evaluation metric for investment centers is that ROI:
A) Is a long-term, not short-term, performance indicator.
B) Understates the level of investment for organizations operating in the so-called knowledge-based economy.
C) Excludes the level of investment from the performance metric.
D) Cannot handle current-value estimates of assets.
E) Is not a relative performance indicator.

Question

Quizplus · Accepted Answer

ROI fails to adequately capture the performance of organizations operating in the knowledge-based economy where investments made in intangible assets do not appear on the balance sheet. Therefore, ROI may understate the true level of investment in such organizations.

A Primary Limitation of Return on Investment (ROI) as a Performance