
For business people, knowing and calculating ROI will produce accurate data and is of course useful for various aspects. However, it turns out that there are several shortcomings in ROI analysis. The following is an explanation of the advantages and disadvantages of return on investment analysis that we can summarize for you:
1. Advantages of ROI Analysis One of the main benefits of ROI analysis is that companies can measure the efficiency of capital use, production efficiency and sales efficiency. Apart from that, analyzing ROI means that the company is carrying out good accounting practices. Here are various other benefits:
This data is useful for obtaining industry ratios (for industrial companies) so that the company's capital use efficiency is known. Apart from that, it is also known whether the company's position is below, the same, or above average.
ROI analysis can be used to measure the efficiency of actions carried out by a division, namely by allocating all costs and capital to the section concerned, so as to reduce investment in excessive use of assets.
ROI analysis can be used to measure the profitability of each product produced by the company. By using “product cost system", capital and costs can be allocated to the various products produced by the company concerned so that the profitability of each product can be calculated.
ROI is useful for control purposes, it is also useful for planning. For example, ROI can be used as a basis for decision making when a company will expand.
2. Disadvantages of ROI Analysis Even though it is profitable, it turns out that ROI analysis also has several weaknesses. Because of this, companies that are large enough usually use complete financial reports to analyze the company's health, find out profit and loss, revenue, and so on.
This analysis makes it difficult to compare one's own company with other companies. This is because the accounting practices adopted by each company are different. That's why we can get a wrong picture of the ROI results of our own company and other companies.
This analysis technique cannot be measured by fluctuations in money exchange rates and purchasing power.


