Return on on investment (ROI)
30 September 2009 - 15:03
The index of return on the investment (ROI by its abbreviations in English) is a financial indicator that measures the yield of an investment, that is to say, the rate of variation that undergoes the amount of an investment (or capital) when becoming utilities (or benefits).
The formula of the index of return on the investment is:
| ROI = ((Utilities - Investment)/Investment) x 100 |
For example, if the total of an investment (capital invested) is of 3000, and the total of the obtained utilities is of 4000, applying the formula of the ROI:
ROI = ((4000 - 3000)/3000) x 100
It gives a ROI us of 33,3%, that is to say, the investment has a 33% yield.
We can use it to the ROI to evaluate a company in march: if the ROI is smaller or just as zero, it means that the investors are losing money; and while more stop is the ROI, it means that more efficient the capital to generate utilities is the company when using.
But, mainly, the ROI is used at the time of evaluating an investment project: if the ROI is smaller or just as zero, it means that the project or future business is not profitable (feasible); and while greater it is the ROI, it means that a greater percentage of the capital is going away to reclaim the being inverted in the project.
Also, the ROI allows us to compare different projects from investment, that one that has a greater ROI will be most profitable and, therefore, most attractive.
Finally, we must indicate that the ROI, due mainly to their simplicity, is one of the main indicators used in the evaluation of an investment project; nevertheless, we must consider that this indicator does not take into account the value from the money in the time, reason why at the time of evaluating a project, always he is recommendable to use it next to other financial indicators, such as the TIR GOES and.
Compártelo
Related contents:
- How to evaluate a project of investment through THEY GO
- Plan of businesses (Part 6): The study of the investment and financing
- Definition of yield
- The TIR GOES and
- The yield of a company
