IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i7p266-d1423343.html
   My bibliography  Save this article

Does the Way Variables Are Calculated Change the Conclusions to Be Drawn? A Study Applied to the Ratio ROI ( Return on Investment )

Author

Listed:
  • Tiago Patrocínio

    (Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), Universidade de Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal)

  • Mara Madaleno

    (GOVCOPP—Research Unit on Governance, Competitiveness and Public Policies, Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), University of Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal)

  • Manuel Carlos Nogueira

    (GOVCOPP—Research Unit on Governance, Competitiveness and Public Policies, Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), University of Aveiro, Campus Universitário de Santiago, 3810-193 Aveiro, Portugal)

Abstract

This research aims to analyse the financial performance of companies using one of the most used profitability indicators, the return on investment (ROI), which measures the company’s performance in terms of the profit generated over time. To this end, several different methods are used to calculate the ROI indicator, considering the different calculation methods used by different authors over the years. The use of different ROI calculation formulas has been identified in the literature, leading to different conclusions. Based on a sample of 2805 Portuguese companies, it examines how the different indicators react to the different variables analysed, using nine different econometric models. Through this study, it is possible to verify that the different variables that depend on the return on investment have different results, namely that the variables “age” and “size” have a negative effect on the return on investment. On the other hand, “financial leverage” and “ROA” have a positive impact on the contribution to the return on investment. We also found that the different variables behave similarly for virtually all types of ROI calculation, although not completely harmonious, especially in terms of impact. The results are empirically vital, as they alert researchers and companies to the need for standardised formulas for calculating variables such as ROI so that results are not distorted. Using one to the detriment of the other impacts the results obtained and the analyses to be carried out. How empirical research will continue to use the ROI metric will always depend on its users’ discretion and free will.

Suggested Citation

  • Tiago Patrocínio & Mara Madaleno & Manuel Carlos Nogueira, 2024. "Does the Way Variables Are Calculated Change the Conclusions to Be Drawn? A Study Applied to the Ratio ROI ( Return on Investment )," JRFM, MDPI, vol. 17(7), pages 1-11, June.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:7:p:266-:d:1423343
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/7/266/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/7/266/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Raja Abid, 2023. "Corporate social (ir)responsibility towards employees and financial performance: using time to solve the chicken-egg problem," Review of Managerial Science, Springer, vol. 17(2), pages 635-659, February.
    2. Hyunju Shin & Alexander E. Ellinger & Helenka Hopkins Nolan & Tyler D. DeCoster & Forrest Lane, 2018. "An Assessment of the Association Between Renewable Energy Utilization and Firm Financial Performance," Journal of Business Ethics, Springer, vol. 151(4), pages 1121-1138, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gholam Reza Zandi & Nadeem Khalid & Dewan Md. Zahurul Islam, 2019. "Nexus of Knowledge Transfer, Green Innovation and Environmental Performance: Impact of Environmental Management Accounting," International Journal of Energy Economics and Policy, Econjournals, vol. 9(5), pages 387-393.
    2. Chung-Hao Chang & Shih-Fang Lo, 2022. "Impact Analysis of a National and Corporate Carbon Emission Reduction Target on Renewable Electricity Use: A Review," Energies, MDPI, vol. 15(5), pages 1-18, February.
    3. Jinji, Naoto & Zhang, Xingyuan & Haruna, Shoji, 2019. "Does a firm with higher Tobin’s q prefer foreign direct investment to foreign outsourcing?," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    4. Christian Schwens & Marcus Wagner, 2019. "The role of firm-internal corporate environmental standards for organizational performance," Journal of Business Economics, Springer, vol. 89(7), pages 823-843, September.
    5. Sayantan Khanra & Puneet Kaur & Rojers P Joseph & Ashish Malik & Amandeep Dhir, 2022. "A resource‐based view of green innovation as a strategic firm resource: Present status and future directions," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1395-1413, May.
    6. Daewoung Choi & Hyunju Shin & Kyoungmi Kim, 2023. "CEO’s Childhood Experience of Natural Disaster and CSR Activities," Journal of Business Ethics, Springer, vol. 188(2), pages 281-306, November.
    7. Li-Ping Fan & Hung-Chang Chung, 2023. "Impact of Environmental Leadership on Environmental Behavior: The Mediating Effects of Green Culture, Environmental Management, and Strategic Corporate Social Responsibility," Sustainability, MDPI, vol. 15(24), pages 1-35, December.
    8. Liu, Xia & Shin, Hyunju & Burns, Alvin C., 2021. "Examining the impact of luxury brand's social media marketing on customer engagement​: Using big data analytics and natural language processing," Journal of Business Research, Elsevier, vol. 125(C), pages 815-826.
    9. Enes Ünal & Vikash Kumar Sinha, 2023. "Sustainability trade‐offs in the circular economy: A maturity‐based framework," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4662-4682, November.
    10. Fuzhen Liu & Kee-hung Lai & Wei Cai, 2021. "Responsible Production for Sustainability: Concept Analysis and Bibliometric Review," Sustainability, MDPI, vol. 13(3), pages 1-27, January.
    11. Pei‐Ju Wu & Chun‐Kai Yang, 2021. "Sustainable development in aviation logistics: Successful drivers and business strategies," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 3763-3771, December.
    12. Kang, Martin & Miller, Andrew & Jang, Kyungmyung & Kim, Horim, 2022. "Firm performance and information security technology intellectual property," Technological Forecasting and Social Change, Elsevier, vol. 181(C).
    13. Rahman, Mahabubur, 2023. "The virtuous circle between green product innovation and performance: The role of financial constraint and corporate brand," Journal of Business Research, Elsevier, vol. 154(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:7:p:266-:d:1423343. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.