- Return on Investment = Earnings Before Taxes (EBT) / Invested Capital
- Invested Capital = Equity – Long-Term Liabilities
- It shows the ability of management to utilize Invested Capital, and to generate net profits from it.
- Return on Investment, which relates net income to total capital, offers a standard for evaluating the efficient use of the average cash invested in a company’s assets by management.
- Increasing return on investment automatically means a higher return on equity.
Business actions to improve the Index
- Increase Pre-Tax Results (increase in Gross Profit, reduce expenses)
- Reduce Equity, mainly through dividend payment
- Increase Long-Term Loans through Investments or portfolio restructuring (from short-term to long-term loans)
