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). This ratio provides an indication of how well management has deployed resources with respect to generating profits. It is calculated by dividing net income or profit by total assets, and can be expressed as a percentage which helps provide a more meaningful comparison between different companies.

For example, if company A has a ROI of 10% and company B has a ROI of 20%, then this indicates that company B is making better use its available resources in terms of generating returns for shareholders. Additionally, higher ROIs may also be indicative of stronger competitive advantages such as superior pricing strategies or cost efficiencies; consequently these firms may have greater potential for future growth.

When analysing a particular company it is important to consider other relevant measures such as sales turnover ratios or inventory turnover in order to gain an understanding of overall performance. Ultimately the combination of various metrics including ROI provides insight into whether management are effectively utilising their existing resources in order to achieve desired goals and objectives going forward.