ACCA Financial Management (F9) Certification Practice Exam

What is another common term for Return on Investment (ROI)?

1. Return on assets

2. Profitability index

3. Return on equity

4. Cost-benefit ratio

The correct answer is: Return on assets

The correct answer is that "return on assets" is another common term for Return on Investment (ROI) as both metrics assess a company's efficiency in generating profits from its total assets. ROI provides a percentage that indicates how effectively capital is being utilized for investment purposes, while return on assets specifically focuses on the profitability relative to the company's total assets. This means that both metrics address similar themes of evaluating performance and efficiency, although they may apply to different contexts or calculations. The other options, while related to profitability and performance measurement, refer to different financial metrics with distinct calculations and implications. Profitability index is a ratio that compares the present value of cash inflows to the initial investment, emphasizing investment feasibility rather than direct return measurements. Return on equity specifically measures profitability concerning shareholders' equity, which narrows down the focus to the owned capital rather than total assets. The cost-benefit ratio analyzes costs versus benefits of a project but doesn't directly equate to ROI, which strictly measures returns against investments made.