Return on investment may be improved by increasing:
A) cost of goods sold and expenses.
B) sales margin and cost of capital.
C) sales revenue and cost of capital.
D) capital turnover or sales margin.

Question

Quizplus · Accepted Answer

Return on investment (ROI) is calculated by dividing net income by the amount of the initial investment. Increasing capital turnover (the amount of revenue generated per dollar of assets) or increasing sales margin (the difference between the selling price and the cost of the product) will both increase net income and therefore improve ROI. Increasing cost of goods sold and expenses will decrease net income and reduce ROI, while increasing sales revenue alone will not necessarily improve ROI without considering the cost of generating that revenue. Therefore, choice D is the best option.

Return on Investment May Be Improved by Increasing