Questions on return on investment ROI?

Answer 1

It's a human nature that if he devotes/(invest) his resources he looks for an healthy outcome (Return) i.e., he wants return on what he had invested. In short it is ROI. (RETURN ON INVESTMENT) A Businessman looks his healthy ROI as how much Profit he had gained from his deployed resources (Health / Wealth). All businesses give returns that return can either result him profit or loss. A smart & successful investor will always care about security of his investment along with desired results. The percentage of return depends on the type of business you have chosen. High risk gives high returns and the low risk gives low returns. Taking example of Our Company an ROI greater than 24% is an healthy ROI from both angles. But an exceptionally high ROI (40% etc.) can lead to the fact that there is some gap which is in reverse direction. ROI can be calculated as follows: (Example of our R.S. /R.D.) 1. ROI = (NET PROFIT /Net INVESTMENT)*100 Net Profit = Gross Profit - Expenditure 2.ROI = No. Of Rotations * Net Profit Margin No. Of Rotations = Turn Over / Investment Net Profit Margin = Gross Profit - Expenditure Gross Profit = %Gross Margin * Turn Over Investment: Paid up Stock, Credit, Claims Gross Profit: Gross Profit stands for (Total Turn Over * % Gross Margin) Expenditure: Expenditure covers each & every money spent in relation with that business. That can be 1. Staff Salary 2. Office Expenses (Tele, Elec., Rent, Insurance, Printing etc.) 3. Distribution Cost 4. Any Discount 5. Miscellaneous Taking example : 1. A TO Z Agency A Sales and Turnover 1 Concern Sec Sales (year 2005) (Rs.lakh) 98 2 Gross Margin @ 4.76% (in Rs.lakh) 4.6648 B Investment (in Rs.lakh per month) 1 Stock 4.01 2 Credit 3.6 3 Avg Claims 0.12 Total 7.73 Total Investment (in weeks) 3.79 4 CET (in days) 5 Net Investment (in weeks)3.07 Net Investment (in Rs.lakh/month) 6.27No. of Rotations 15.6 C Cost Elements (in Rs. per month) 1 Salesmen - Salary + TA/DA + misc4500 2 Other Staff Cost a Godown keeper 1000 b Computer operator 0 c Any other staff 0 Total 10003 Distribution cost a Cost of Diesel 0 b Cost of Oil 2000 c Vehicle Maintenance 1200 d Vehicle Driver - Salary + TA/DA 2800 e Delivery Boy - Salary 2000 f Cost per dispatch 0 g Any other delivery costs 650 Total 8650 4 Office Expenditure a Telephone and Fax 700 b Electricity 300 c Printing and Stationery 200 d Rent and Insurance 500 e Miscellaneous 0 Total 1700 5 Discount to Trade 8100.00 Total operating Costs (Annualised)2.87 Net Margin (in Rs.lakhs) 1.79 Net Margin % 1.83 Return on Investment 28.6ROI of A TO Z Agency comes out 28.6% which is an healthy ROI. REGARDS NARESH SINGH LUXOR PARKER