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elf. The main benefit of using Return on Investment (ROI) and the reason for its popularity is the simplicity of its calculation. ROI estimates the return of an investment by looking at the benefits and costs associated with the investment.

ROI is particularly easy to calculate and understand when compared to other financial tools such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. Although the calculations for these financial tools are more complex, the results are arguably more accurate. Nonetheless, ROI is an appropriate first step for estimating the economic return of an investment. Other ROI benefits include the use of the tool to establish an initial framework of assumptions to ultimately determine the value of the project.

The ROI calculation forces a thorough thinking of investment variables such as intangibles, risk, and timing. These assumptions are as important as the ROI calculation itself because they are the inputs that will ultimately impact the overall ROI result。

Ratios help in the assessment of the profitability of a business concern through the various profitability ratios, which serve as a guide to analysts in assessing the earning capability of the company and its management. With the help of solvency ratios, solvency of the company can be measured. These ratios show the relationship between the liabilities and assets. In case external liabilities are more than that of the assets of the company, it shows the unsound position of the business.

In this case the business has to make it possible to repay its loans. Ratio analysis help the outsiders just like creditors, shareholders, debenture-holders, bankers to know about the profitability and ability of the company to pay them interest and dividend etc. Accounting ratios indicate the trend of the business. The trend is useful for estimating future. With the help of previous years’ ratios, estimates for future can be made. In this way these ratios provide the basis for preparing budgets and also determine future line of action.

Accounting ratios attempt to highlight relationships between significant items in the accounts of a firm. By calculating ratios, we can assess the profitability, efficiency, and solvency of the firms yet they are inconclusive and hence have their own limitations in their functions and therefore cannot be used as the sole means of assessing the performance of publicly traded companies. Some of the limitations of the ROI are discussed below.

The ROI calculation does not take into account the time value of money or the risk associated with a project or investment. The time value of money concept says that a dollar earned today is worth more than a dollar earned tomorrow. This is particularly true when considering other investment alternatives and the effect of inflation from a macroeconomic perspective.

In addition, the risk of the project needs to be accounted by incorporating all the possible financial outcomes associated with the project. These possible outcomes include the possibilities that the project will not yield the expected results because of the inherent risks of the project. The fact that risk and the time value of money are omitted in the ROI calculation may cause managers to mistakenly reject pro本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。