Strategic Management: Formulation and Implementation

Return On Investment (roi)

The return on investment (ROI), measures the overall effectiveness of management in generating profits with its available assets.

Return on investment = Net income after taxes
Total assets

Jimco's return on investment in 1993 is

$1,800,000 = 0.58, or 5.8%

industry average = 5.9%

Return On Equity (roe)

The return on equity (ROE) measures the return earned on the owners' (both preferred and common stockholders') investment. Return on equity is calculated as follows:

Return on equity Net income available to common
Common equity

This ratio for Jimco is:

$1,800,000 = .175, or 17.5%

industry average = 13.08%