What indicates a business has higher return on investment?

Higher return on investment (ROI) is typically achieved when a business effectively balances its revenues against the costs incurred to generate those revenues. In this context, higher margins—representing the difference between the cost of goods sold and the selling price—indicate that the business retains more profit for each sale. This inherently improves profitability as long as the expenses associated with generating those revenues are managed effectively and kept low.

Higher margins suggest the business is pricing its products or services in a way that maximizes profit potential after covering costs. When expenses are also kept low, this further enhances the financial efficiency of the operations, contributing to a better ROI. Therefore, the combination of higher margins and lower expenses directly correlates with more efficient use of resources and capital, leading to a greater return on the investments made.

In contrast, options that involve having more money tied up in inventory, increased inventory turnover, or lower sales costs can have different implications for financial health and investment returns. For instance, more money in inventory can indicate capital that is not being used effectively, which does not necessarily suggest higher returns. Additionally, while improved inventory turnover can lead to increased sales, it does not directly quantify return on investment. Lower sales costs, while beneficial, may not automatically result in