The ROI is the single most important measure of a firm's financial position. You might say it's the bottom line for the bottom line. This ratio is found by dividing net profit by net worth and multiplying the result by 100. It provides information on the productivity of the resources the owners have committed to the firm's operations. All ratios measuring profitability can be computed either before or after taxes, depending on the purpose of the computations.
Ratios have limitations.
Since the information used to derive ratios is itself based on accounting rules and personal judgments, as well as facts, the ratios cannot be considered absolute indicators of a firm's financial position. Ratios are only one means of assessing the performance of the firm and must be considered in perspective with many other measures. They should be used as a point of departure for further analysis and not as an end in themselves. The following questions are designed to help you measure the adequacy of the profit your firm is making. Robert Morris Associates, the Accounting Corporation of America, NCR Corporation, and the Bank of America.