Return on Investment A better measu

Return on Investment A better measure of the performance of a firm than
the amount of profit it makes in a year is its return on investment (ROI), which is the
ratio of net income to the investment used to earn that net income. To calculate ROI,
it is necessary to subtract income taxes from profit before taxes to obtain net income,
then divide this figure by the investment that can be found on a firm’s balance sheet
(which is another accounting statement that shows the firm’s assets, liabilities,
and net worth). While financial and accounting experts have many definitions for
investment, an often-used definition is “total assets.”