An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

Return On Investment

A financial ratio that calculates the profitability of an investment by dividing net profit by the initial cost of the investment.

Operating Assets

Assets used in the day-to-day operations of a business to generate revenue, excluding investment and non-operational assets.

Net Operating Income

A company's revenue minus its operating expenses, excluding taxes and interest, signaling its profitability from regular operations.