Question

Assertion (A): Return on investment explains the overall utilization of funds by a business enterprise.

Reason (R): It measures return (Net Profit before Interest and Tax) on total funds (Capital employed).

In the context of these statements, choose the correct option.

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is correct explanation of (A).

Explanation:

Return on Investment (ROI) shows how efficiently a company uses the total funds to generate profit. It is computed as Net Profit before Interest and Tax (PBIT) ÷ Capital Employed, which evaluates the return on total funds invested. As a result, both Assertion and Reason are true, and Reason correctly explains Assertion.