Leading Entrepreneurship

Return on Investment (ROI) measures the efficiency using the owners’ capital to generate profit.

Desired Comparison to Industry Average
Generally, greater than, or equal to, the industry average.

If Quick Ratio is Above Industry Average
May indicate too much leverage or risk. Too much debt
financing causes return to appear abnormally high. Could indicate an undercapitalized firm. Can signal trouble in times of rising interest rates, shrinking margins, and economic slow downs.

If Quick Ratio is Below Industry Average
Indicates low profits or over-capitalization – or both. Over-
capitalization indicates too much equity and not enough risk-taking. Usually excess debt capacity (too highly capitalized firm) causes reduced cash flow and increased bad debt expenses.