Question

Which of the following is a universally accepted measure of profitability?

1) Return on investment.
2) Return on retained earnings.
3) Return on liabilities.
4) All of these.

Answer 1

The universally accepted measure of profitability among the provided options is the Return on Investment (ROI), which compares net income to investment cost.

option 1. Return on investment is the correct option.

Step-by-step explanation:

The question being asked concerns finding a measure that is universally accepted for assessing the profitability of a company. Among the options provided, the Return on Investment (ROI) is typically recognized as a universally accepted measure of profitability. This is because ROI calculates the gain or loss generated on an investment relative to the amount of money invested. It does so by comparing the net income generated by the investment against the cost of the investment itself, resulting in a percentage or ratio that reflects profit levels relative to the invested funds. Options such as Return on retained earnings and Return on liabilities are not standard universal measures of profitability.

As an example, if a firm invests in a machine that lasts 10 years and improves business operations, the ROI would be calculated by subtracting the cost of the machine from the profits attributable to its use and then dividing by the cost of the machine to determine the profitability of this long-term investment.

Hence, within the provided options, option 1) Return on Investment is the answer.