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“ROI does not take into account the cost of capital. It merely looks at
profits relative to capital employed without taking into account the cost of the capital
which has been invested. It is therefore not consistent with maximising returns to
investors”
So that means the ROI controllable profit figure is before interest and tax that,s why does not take account of the cost of capital?If that,s not the case how come the above statement true?
Investors want the company to be earning more than the cost of money to the company.
If it is costing 20% but the company is only earning a return of 15% then that is not good for the investors.