ECONOMICS

Detailed explanation-1: -Although ROI is a quick and easy way to estimate the success of an investment, it has some serious limitations. For instance, ROI fails to reflect the time value of money, and it can be difficult to meaningfully compare ROIs because some investments will take longer to generate a profit than others.

Detailed explanation-2: -Companies often use return on investment (ROI) as a performance measure for managers of investment centers. ROI is a financial performance measure equal to operating income divided by average operating assets. Companies calculate ROI as a percentage and compare it to the expected ROI.

Detailed explanation-3: -A disadvantage of evaluating managers’ performance based on ROI (Return On Investment) is that it can lead to undesirable managerial actions.

Detailed explanation-4: -One of the disadvantages to ROI is that it does not take into account the holding period of an investment. This can be problematic when comparing investment alternatives. ROI also does not adjust for risk and the ROI figures can be exaggerated if all the expected costs are not included in the calculation.