A Limitation of ROI as a Measure of Performance Is

question 102

Multiple Choice

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.

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Definitions:

Current Market Price

The price at which an asset or security is traded in the market at the present moment.

Current Liabilities

Obligations or debts of a company that need to be settled with creditors within a twelve-month period.

Twelve Months

A period of one year, often used in financial statements to provide a snapshot of a company's performance.

Descending Order of Liquidity

Ranking assets on a balance sheet from the most liquid (easily converted into cash) to the least liquid.