Return of investment calculation formula

Calculating return on investment is what every entrepreneur must do before he approaches a bank for a loan or an investor. In fact before he can even convince himself that the idea is worth his investment of time and money he should have satisfied himself that the benefit derivable from the inputs is high enough. Return on investment is a simple measure of the benefit a business will produce from the all that is put in terms of money and other resources. Calculating the returns on investment satisfy all concern that there is an incentive to carry on with the venture. Calculating the return on investment is quite simple as we will see.

USE OF RETURN ON INVESTMENT

Until recently, most people and firms use return on investment calculations only when it comes to investments. They use it as a yard stick to choose where to put their profit into as an investment. But as time progressed on the crunch from the economy got tighter, management started questioning every cash outlet, and before long the question on the lips of cooperate leaders became, what is the benefit?

The question is essentially saying, what is the return on investment? And this was asked about everything. So it became clear that every single investment of time or money on anything must be decided based on the return on investment, so many areas where return on investment can be calculated came forward. Some which include

RETURN ON INVESTMENT ON CPRPERATE TRANING

On-the- job training is a very important investment any firm can make. This is even more needed now where knowledge in very field is multiplying at a fast rate. Without keeping your staff up to date with current technology and method of practice a firm cannot stay competitive for long. But then, we must find a way of calculating the return on investment on these training or otherwise, rule it off. Training is good, but money should not be wasted.

WAYS OF INCREASING RETURN ON INVESTENT ON TRANINGS

- REDUCING DURATION

It is known that cutting cost is a good way to improve the return on investment. One easy way to cut cost is to reduce the training time.

- REDUCING THE TRAINING CYCLE

The number of trainings should be limited. The module should be chosen in such a way as to be relevant for a long time. This will cut cost.

CALCULATING RETURN ON INVESTMENT

As we said earlier, it is a very straight forward process. Calculating return on investment simply makes use of a formula given blow;

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

Another formula is;

ROI = (Revenue - Cost of goods sold)/cost of goods sold

COMPLICATIONS THAT MAY ARISE

A few issues may pop up when applying this formula, the things may include, an increase on the loan taken earlier, refinancing of mortgage, all these will have profound effect on the return on investment. And sometimes, depending on what we are calculating the return on investment for, the formula may not be this simple.

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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