Return on investment is defined as profit divided by the initial investment. Return on which of the following is thus calculated?

Master the BOMI Facilities Management Fundamentals Exam. Study with flashcards and multiple choice questions, each offering hints and explanations. Prepare effectively and excel in your exam!

Multiple Choice

Return on investment is defined as profit divided by the initial investment. Return on which of the following is thus calculated?

Explanation:
Return on investment measures how efficiently the money actually put into a venture earns profit. The denominator in ROI is the initial amount invested—the funds committed to the project. In other words, ROI uses invested capital as the base. For example, if you invest 10,000 and earn 2,000 in profit, ROI = 2,000 / 10,000 = 20%. Assets are resources owned, liabilities are debts, and equity is the owners’ claim after debts. None of these directly represent the initial funds put into the project, so they aren’t the denominator for ROI.

Return on investment measures how efficiently the money actually put into a venture earns profit. The denominator in ROI is the initial amount invested—the funds committed to the project. In other words, ROI uses invested capital as the base.

For example, if you invest 10,000 and earn 2,000 in profit, ROI = 2,000 / 10,000 = 20%.

Assets are resources owned, liabilities are debts, and equity is the owners’ claim after debts. None of these directly represent the initial funds put into the project, so they aren’t the denominator for ROI.

More practice questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy