Calculate return on investment accounting

Calculation of report on investment accounting has been in place in the world of investment since time immemorial. Its usefulness cannot be disputed, and as such it remains a very viable part of the world of commerce. What exactly is return on investment accounting, what are its benefits to an investor, and how can it be calculated?

WHAT IS INVESTMENT ACCOUNTING?

In a nutshell, investment accounting refers to taking into accounts all the activities that comprises the efficient workability of an investment. It is important that every investment, no matter how simple or small, should be accounted for to avoid hitches. It may not seem like it, but with time, the investor will come to realize that investment accounts provide supports to the investment in various ways, which amounts to the benefits of investment accounting.

BENEFITS OF RETURN ON INVESTMENT ACCOUNTING

Some of the things an investor stands to gain by keeping good records on return of investment are as follows.

- BALANCES ACTIVITIES WITH EXTERNAL CUSTODIAN RECORDS:

One of the benefits of keeping an investment account record is that it helps investors keep an open and professional relationship with whoever they are into business with from time to time.

- PERFORMANCE OF THE INIVESTMENT:

With these records, the investor can tell if the investment is doing well or not as related to a specific period of time. This helps the investors to make necessary adjustment when necessary, and also points out the areas that need improvements.

- FOR REFERENCES:

With records of investment accounting, an investor can make references in the future. This is a way of avoiding mistakes that the investors might have made in the past, and also helps them to make proper decisions regarding their investments as a result of the experience they have acquired, and the investment record.

HOW TO CALCULATE RETURN ON INVESTMENT ACCOUNT

To calculate return on investment (ROI), it is expected that the investment must have functioned for a while. From its tie of function, one can get the right values needed to calculate the ROI. To calculate the return on investment, the following are needed

  1. Gain from investment; this is the much return that has been made from the investment within a specified period of time.

  2. Cost of investment; this has to do with how much it cost to set up the investment to a functional level of operation.

Formula for calculating ROI;

ROI = (gain from investment – cost of investment) ÷ cost of investment

It is a straight forward calculation that does not require much technicality. If the ROI is high, then the investment is said to be doing well. If the ROI is low, then it is not doing well enough.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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