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The problems arise when it is not the case that Vb2 = Vf1, This arises when a portfolio makes a purchase at a known price in the middle of a day without pricing the rest of the portfolio at the time of the purchase. Especially if one desires a general and economically reasonable result that applies even in the case when Vb1=0. A related and more difficult problem arises when there is a transfer in the middle of the day between two sub-portfolios which comprise a total portfolio. It is then very difficult to provide an economically meaningful return of the total portfolio for the whole period as the weighted average of the returns of the sub-portfolios for the whole period. Trying to come up with a viable solution shows how difficult applying the apparently simple concept of "ROI" can become. On another point, "Return on investment", is too narrow a name for this concept. The concept is not only applicable to financial investments. "Rate of Return" would be better. But I do not know why the original name of "Return" is still not best of all. Can someone enlighten me on this before I go ahead and change it back to "Return" in the general sense, rather than have the discussion just focus on "business" matters. |
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