Question

Oliver Co. increased sales from $100,000 to $150,000 while controlling expense growth so that operating income increased from $30,000 to $35,000. Assuming investment in operating assets remains constant at $50,000, what is the effect on ROI?

Answer 1

Increased

Step-by-step explanation:

The formula to compute the return on investment is shown below:

Return on investment = Operating Income ÷ Operating Assets

In the first case, the ROI would be

= $30,000 ÷ $50,000

= 60%

In the second case, the ROI would be

= $35,000 ÷ $50,000

= 70%

The ROI is increased from 60% to 70%. It is always shown in percentage terms