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Return on investment

Return on investment compares a defined profit with the investment base supporting it, expressed as a percentage. Specify controllable or divisional profit and the asset or capital basis, including opening, closing or average amounts. It supports comparisons but can encourage managers to reject value-creating projects that reduce their current average return. Accounting policies, asset age and central decisions can distort it, so assess managerial and economic performance separately.

Worked example

A division earns $200,000 on $1 million investment, ROI 20%. A project earning $18,000 on $100,000 returns 18%; it can still be worthwhile if the required return is 12%.

Common mistake

A project below the division’s current ROI is not automatically bad for the organisation.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA APM Direct September 2026–June 2027
ACCA MA Direct September 2026–June 2027
ACCA PM Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027