Uncommon Sense: The Old ROI Ain’t What It Used to Be.
The Old ROI Ain’t What It Used to Be.
The accountants' method is faulty for two reasons. First, you don't get the same return from every dollar you spend. Some earn you big bucks, and some don't get you much at all. Nevertheless, accountants dump all investment dollars into one big line item called "investment" and do the math from there. Of course, you might argue that you need all that hardware to support operations, whether you get a lot from it or not. And you could be right, but you could be dead wrong, too. Too often, manufacturers don't really need many of the assets that aren't contributing to their bottom lines. Do you really need the plant in Puerto Rico? What would be the difference if you closed it? If all assets don't provide the same returns, stuffing them into the same line item will hide those that don't get you much.