Businessmate Site Logo

                                  Home - About - Advertise

                                  Date: 2020-06-08
                                  Search Articles by topic

                                  Mangement and Leadership

                                  Production Management

                                  Business Strategy



                                  Human Resource Management

                                  Organizational Theory & Design

                                  National and Organizational Culture

                                  Important Business Terms


                                  Article Search
                                  Search Title & Content:
                                  Search Author:

                                  Custom Search






                                  Return on Investment (ROI)

                                  Recommend this article to your friends!

                                  Return of Investment is a performance measure used to evaluate the efficiency of an investment that can help to compare the efficiency of several different investments. ROI is calculated accordingly:


                                  Formula for calculating ROI:


                                  (Gain From Investment - Cost of Investment)

                                  ROI =

                                  Cost of Investment


                                  If the potential investment does not have a positive ROI, or other investments show a higher ROI, the investment should potentially not be made.


                                  It is fairly easy to manipulate ROI to suit the situation, because it is a fairly qualitative task to evaluate coming gains and costs. Therefore ROI should only be seen as a guiding financial metric, because the metric only "attempts" to evaluate the efficiency of an investment.


                                  If gains and costs have been realized, the formula can still be modified by e.g. not including all costs of an investment. A good example of this is, when products are produced without any specific demand and put in stock. By doing so, the average cost pr. unit of each SOLD item appears smaller in the financial statement, because the costs of the entire production has literally been stocked.

                                  Therefore, people using ROI as a financial metric should make themselves perfectly clear what inputs and figures are being used.

                                  Date Created: 2009-10-16
                                  Posted by: Admin
                                  Return on Investment (ROI)

                                  Related resources:

                                  Return on Assets (ROA)
                                  Return on Equity (ROE)
                                  Return on Sales (ROS)
                                  Return on Capital Employed (ROCE)
                                  Contribution Margin and Contribution Margin Ratio
                                  Advanced Management Accounting
                                  Kaplan, R. & Atkinson, A; (1998); Prentice Hall

                                  Online MBA, Online MBA Courses, Return on Investment, ROI, example, calculation, formula


                                  Advertise on


                                  Copyright © BusinessMate 2009-2019

                                  Home - About - Terms of Use - Contact - Sitemap - Privacy Policy





                                                                  Super League


                                                                  search for