Return on Investment (ROI) is a performance measure used to evaluate the profitability of an investment. It is calculated by dividing the net profit (or return) from an investment by the cost of the investment. The question's description, "the ratio of annual operating income to the total capital put in the business," directly aligns with this definition. "Annual operating income" represents the return, and "total capital put in the business" represents the investment cost. This ratio fundamentally assesses how efficiently capital is being used to generate operating profits.

B. Return on asset (ROA): This ratio measures profitability relative to total assets (Net Income / Total Assets), not specifically the capital invested as described.

C. Profit margin: This measures profitability relative to sales revenue (e.g., Operating Income / Sales Revenue), not the capital base of the business.

D. Operating efficiency: This is a broad category of financial metrics that assess operational performance, not a single, specific ratio as defined in the question.

1. Brealey

R. A.

Myers

S. C.

& Allen

F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education. Chapter 28

"Financial Analysis

" distinguishes between ratios measuring return on investment

return on assets

and profitability margins.

2. MIT OpenCourseWare. (2004). 15.511 Financial Accounting

Lecture Notes: Session 12 - Financial Statement Analysis. Massachusetts Institute of Technology. Retrieved from https://ocw.mit.edu/courses/15-511-financial-accounting-summer-2004/resources/session12notes/. This source defines and differentiates key financial ratios

showing that ROA uses total assets and profit margin uses sales in their denominators.

3. Damodaran

A. (n.d.). Return on Capital (ROC)

Return on Invested Capital (ROIC) and Return on Equity (ROE): Measurement and Implications. Stern School of Business

New York University. Retrieved from https://pages.stern.nyu.edu/~adamodar/pdfiles/papers/returnmeasures.pdf. This paper (p. 4-5) defines return on capital using operating income in the numerator and the capital invested in the denominator

aligning with the core concept of ROI.