Final answer:
Decomposing ROI into ROS and AT provides improved decision-making, enhanced performance evaluation, and leads to better resource allocation, which can indirectly increase profitability.
Step-by-step explanation:
An advantage of decomposing Return on Investment (ROI) into its two primary components, Return on Sales (ROS) and Asset Turnover (AT), is Improved Decision-Making. This decomposition provides a more detailed analysis. Instead of simply looking at the overall ROI, the business can dissect the components to understand underlying factors influencing profitability. ROS reflects the company's efficiency in converting sales into profits, while AT shows how effectively the company uses its assets to generate sales. By examining these components separately, management can identify specific areas of strength and weakness, leading to targeted strategies to improve each component.
Enhanced Performance Evaluation is beneficial as well by helping to assess the performance of different divisions or product lines within a company. This, in turn, leads to Better Resource Allocation as it becomes clearer where to invest or divest resources based on the analysis. Although not an immediate consequence, these steps can indirectly lead to Increased Profitability as a result of more informed decisions and efficient use of resources.