(RETURN ON INVESTMENT

)

WHAT IS INVESTMENT
Can be in following form: • Capital • Assets • Principal amount • Other…

Definitions of ROI
• it is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. • It is the ratio between the financial benefit or loss of an investment and the amount of money invested.

• It is a measure of the performance of any investment

Characteristics of ROI
• Can be profit or loss • Can be fixed or non fixed • Helps in comparison • Does not indicate the duration • Expressed as a percentage (%)

Form of ROI
• Dividend • Interest • Profit/loss • Capital gain/loss

Calculation of ROI
FORMULA – ROI = Net Income x 100 (Cost of Investment)
NET INCOME = (Income from investment – Cost of Investment)

Example of ROI(GAIN)
• Our investment = 2’00’000/• It became after sometime = 2’20’000/• ROI = 220000 – 200000 x 100 200000 = 10 % (profit)

Example of ROI (LOSS)
• Our investment = 2’00’000/• It became after sometime = 1’80’000/• ROI = 180000 – 200000 x 100 200000 = 10 % (loss)

• To compare profitability of company • To compare different projects • Personal financial decision • It is a measurement of cash

Uses of ROI

• To assist in evaluating on opponent’s of profitability

Thumb rules of ROI
• Rule of 72 • Rule of 114 • Rule of 144

Impact towards third party (society)
• It will create a positive image. • It will increase people interest. • It will increase share prices of co. • It will increase premium of shares.

Sign up to vote on this title
UsefulNot useful