Which financial ratios is the best measure of the operating effectiveness of a firm’s management?

The financial ratio that is considered the best measure of a firm’s operating effectiveness is return on investment (ROI). The ROI ratio is a measure of the efficiency with which management has allocated resources to generate profits. This ratio is calculated by multiplying net income by the total assets. It can also be expressed in percentages to make it easier for companies to compare.

If, for example, company A generates a return on investment of 10%, but company B achieves a 20% ROI, this means that the latter is generating a better ROI in terms of returns to shareholders. In addition, higher returns may be indicative of greater competitive advantages like superior pricing or cost-efficiency; therefore these companies may have a higher potential for growth.

In order to understand the overall performance of a company, it’s important to take into account other measures like sales turnover ratios and inventory turnover. The combination of metrics, including ROI, provides an insight on whether the management is effectively utilizing their resources to reach desired goals and objective moving forward.