Return on investment (ROI) is a financial ratio used to calculate the benefit an investor will receive in relation to their investment cost, most commonly measured as net income divided by the original cost of the investment.
Click here to learn more about this topic: https://corporatefinanceinstitute.com/resources/knowledge/finance/return-on-investment-roi-formula/

Views: 3522
Corporate Finance Institute

Residual income, common fixed cost, Return on investment, ROI, segment margin, traceable fixed cost
Present value of single amount, present value of annuity, ordinary annuity, annuity due, future value of annuity, future value of annuity,
return on investment, net present value, NPV, internal rate of return, IRR, payback period, cost of capital, capital budgeting, simple rate of return,
Ratio analysis, book value per share, return on stockholders equity, return on equity, payout ratio, retention ratio, financial statement analysis, profitability ratio, long term solvency ratio,

Views: 10407
Farhat's Accounting Lectures

ACCA F5 Divisional performance measurement - Return on Investment (ROI), Residual Income (RI)
Free lectures for the ACCA F5 Performance Management Exams

Views: 12087
OpenTuition

In this 10 minute revision video, Jim Riley from tutor2u introduces and explains the concept of shareholder ratios and illustrates how they are calculated.

Views: 19960
tutor2u

Profitability ratios look at the returns earned by a business both in terms of its trading activities (sales revenue) and also how much is invested in earning those returns (capital employed). This revision video introduces the four main profitability ratios.

Views: 76064
tutor2u

Return on Investment (ROI) and Residual Income (RI) -
Divisional performance measurement - ACCA Performance Management (PM)
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Free lectures for the ACCA Performance Management (PM) Exam
To benefit from this lecture, visit opentuition.com/acca to download the notes used in the lecture and access ALL free resources: ACCA lectures, tests and Ask the ACCA Tutor Forums
Please go to opentuition to post questions to ACCA Tutor, we do not provide support on youtube.

Views: 2556
OpenTuition

What is ROI and how come everyone talks about it all the time? How is simple ROI calculated? What is it used for in business? Why should I understand the concept if I run a business or sell a product?

Views: 36083
Quatere

DuPont equation tutorial. ROE: Return On Equity. ROA: Return On Assets. ROS: Return On Sales. This video takes you through the financial ratios of the ROE formula, the ROA formula, the ROS formula, asset turnover and leverage, and shows how they fit together. The very basics and the very essence of financial ratio analysis!
ROE or Return On Equity is defined as Net Income divided by Equity. In other words, the net profit that a company has generated during a year, divided by the book value of the shareholder capital invested in the company. ROE is a measure of the rate of return to shareholders.
The 3-part version of the DuPont analysis shows you that ROE = ROS x asset turnover x leverage. The first two elements together, ROS multiplied by Asset Turnover, form ROA, Return On Assets. This ratio of ROA has many variations, some companies measure ROIC Return On Invested Capital, ROTC Return On Total Capital, ROCE Return On Capital Employed, or RONOA Return On Net Operating Assets. These are all variations on the same theme, you look at the returns (profit) generated during a period, and compared them to the capital invested in the company to generate those returns. ROA is an indicator of business success, influenced by two factors: ROS or margin performance, and asset turnover which you could call speed or velocity.
ROS or Return On Sales, is Net Income divided by Sales, which is an indicator of the relative profitability or operating efficiency: how many cents of profit are generated for every dollar of sales?
Asset Turnover is calculated as Sales divided by Assets, a measure of asset use efficiency.
The last element of the DuPont 3-part equation is leverage, Assets divided by Equity.
You can expand the DuPont formula to 5 steps, if you want even more analytical insight into the drivers of where your ROE increase or decrease is coming from. The two elements on the right stay the same: asset turnover and leverage. However, ROS gets split into three elements: Net Income divided by Earnings Before Tax, which is called tax burden, Earnings Before Tax divided by EBIT, called interest burden, and EBIT divided by sales, which is EBIT%. In a lot of companies, improving the EBIT% and increasing the Asset Turnover, are important targets for the management team, whereas the other elements are for the finance, treasury and tax departments to manage.
For an illustration of Return On Assets, my follow-up video analyzing ROA, ROS and asset turnover of Verizon and Walmart is highly recommended https://www.youtube.com/watch?v=2j8bfR8KqJ0
Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

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The Finance Storyteller

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Return on equity is a type of profitability ratio that measures how successful a firm is at using its investments to generate profit. Using the return on equity formula, investors can determine how much profit they're receiving for each dollar in equity investment. Not only does this financial ratio allow investors to determine if their making a good investment, but it also allows them to compare the company's performance to that of other firms.
Learn more about return on equity or ROE in the latest lecture from Alanis Business Academy.
__________
Photo by Rick Tap: https://unsplash.com/@ricktap

Views: 4141
Alanis Business Academy

http://accountingcollege.co.uk/ Ratios are a topic that comes up repeatedly in ACCA exams. This video provides students with revision theory for Earnings Per Share, Dividend Per Share, Dividend Yield, Dividend Cover, Price Earnings Ratio, Earnings Yield, Return on Equity.

Views: 4638
AC Training

This video describes how to use return on investment (ROI) to evaluate investment centers.

Views: 1376
KurtHeisinger

In part 1 of this risk-adjusted return series I will introduce the Sharpe Ratio and why it's important to view investment performance in terms of risk
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Money Talk

Return on Investment (ROI) for Performance Evaluation can be learnt from this video.
Please SUBSCRIBE if you enjoyed.

Views: 165
Md. Azim

P/E ratio, pe ratio, stock options, dividend yield, financial ratio,
Ratio analysis, book value per share, return on stockholders equity, return on equity, payout ratio, retention ratio, financial statement analysis, profitability ratio, long term solvency ratio, cash dividend, property dividend, liquidating dividend, stock dividend, small stock dividend, large stock dividend, cpa exam

Views: 2340
Farhat's Accounting Lectures

This video shows how to calculate the Treynor Ratio.
The Treynor Ratio is a percentage that measures the reward-to-risk ratio of a portfolio, where risk refers only to the systematic risk of the portfolio. The Treynor Ratio is calculated as follows:
Treynor Ratio = Excess Return of the Portfolio / Beta of the Portfolio
The excess return of the portfolio is the portfolio's expected return minus the risk-free rate.
The Treynor Ratio is similar to the Sharpe Ratio in that it can be used to rank portfolios based on their reward versus their risk. However, the Treynor Ratio uses systematic risk whereas the Sharpe Ratio uses volatility (total risk) to measure risk. Thus, the Treynor Ratio is best used with well-diversified portfolios (because in those portfolios nonsystematic risk has been diversified away).
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Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams. To learn more about Michael's story, visit http://www.MichaelMcLaughlin.com
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Views: 1046
Edspira

Apply the Sharpe ratio, M2 measure, Treynor ratio, Jensen’s alpha, and information ratio to evaluate portfolios.

Views: 10966
Paul Docherty

For your free course notes to accompany this video visit
www.theexpgroup.com/expand/

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theexpgroup

Project management topic on Capital budgeting techniques - NPV - Net Present Value, IRR - Internal Rate of Return, Payback Period, Profitability Index or Benefit Cost Ratio.

Views: 454714
pmtycoon

Hi Guys, This video will show you how to find the expected return and risk of a single portfolio. This example will show you the higher the risk the higher the return.
Please watch more videos at www.i-hate-math.com
Thanks for learning !

Views: 204664
I Hate Math Group, Inc

Accounting for evaluating assets relative to activity (turnover) and profitability, 1-Asset Turnover Ratio, 2-Profit Margin on Sales and 3-Rate of Return on Assets, (1) Asset Turnover Ratio: How efficiently a company uses its assets to generate sales, (net sales/average total assets) = equals asset turnover ratio, (2) Profit Margin on Sales Ratio: (Rate of Return on Sales), how profitably the company uses its assets, (net income/net sales) = profit margin on sales, and (profit margin on sales x asset turnover ratio) =rate of return on assets, (3) Rate of Return on Assets (ROI): The rate of return a company acheives through use of its assets, (net income/average total assets) = rate of return on assets, detailed calculations by Allen Mursau

Views: 18354
Allen Mursau

Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. If two funds offer similar returns, the one with higher standard deviation will have a lower Sharpe ratio. In order to compensate for the higher standard deviation, the fund needs to generate a higher return to maintain a higher Sharpe ratio. In simple terms, it shows how much additional return an investor earns by taking additional risk. Intuitively, it can be inferred that the Sharpe ratio of a risk-free asset is zero.
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Yadnya Investment Academy

Watch more How to Start a Business videos: http://www.howcast.com/videos/437106-How-to-Calculate-ROI-Return-on-Investment
Return on investment, or ROI, is the overall profit made on an investment expressed as a percentage of the amount invested -- one of the most important gauges of business success. Learn how to figure out your ROI.
Step 1: Determine net profit
Determine the company's net profit, also known as net earnings.
Tip
Make sure not to confuse net profit with gross revenue.
Step 2: Calculate total investment
Calculate the total investment, which can be found by adding total debt to total equity.
Step 3: Multiply by 100
Divide the net profit by the total investment and multiply by 100 to find the basic return on investment. If the net profit is $100,000 and the total invested is $300,000, then the return on investment would be 33 percent.
Step 4: Compute stock ROI
Compute the return on stock investments with a variation of the basic formula.
Step 5: Find the value
Imagine you invest $5,000 in a company. One year later, the stock's value has risen to $5,200 and you earn $100 in dividends. Use the new formula to calculate your ROI at 6 percent.
Did You Know?
In 1919, the DuPont company developed their own ROI formula, known as the DuPont Formula.

Views: 40778
Howcast

ACCA P5 Divisional Performance Measurement, ROI and RI Compared, Annuity Depreciation
Free lectures for the ACCA P5 Advanced Performance Management Exams

Views: 9782
OpenTuition

This short revision video introduces the concept of Return on Capital Employed.

Views: 77217
tutor2u

How to correctly measure investment risk in finance is an important consideration. However, there are many ways to measure risk and most professionals don't make it any easier by using industry jargon.
In this video you'll learn how to decipher the various names for risk, what they mean for your portfolio, and several lesser used, but very robust risk measures.
We'll cover:
Volatility and Standard Deviation
Downside Volatility and Modified Standard Deviation
Max Drawdown and Max Drawdown Sum
The Sharpe Ratio
The Sortino Ratio
http://RealizeYourRetirement.com

Views: 12142
Realize Your Retirement

This video shows how to calculate the Sharpe Ratio.
The Sharpe Ratio measures the reward (excess return) to risk (volatility) of a portfolio. This allows investors to rank portfolios. The Sharpe Ratio is calculated as follows:
Sharpe Ratio = Excess Return of Portfolio / Volatility of Portfolio
The excess return of a portfolio is the expected return of a portfolio minus the risk-free rate.
The Sharpe Ratio is also the number of standard deviations by which the portfolio's return must fall to underperform the risk-free investment.
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Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams. To learn more about Michael's story, visit http://www.MichaelMcLaughlin.com
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To follow Michael on Facebook, visit https://www.facebook.com/Prof.Michael.McLaughlin

Views: 5297
Edspira

Reasons for using Return on Investment (ROI) and Residual Income (RI) - ACCA Performance Management (PM)
*** Complete list of free ACCA lectures is available on OpenTuition.com https://opentuition.com/acca/pm/ ***
Free lectures for the ACCA Performance Management (PM) Exam
To benefit from this lecture, visit opentuition.com/acca to download the notes used in the lecture and access ALL free resources: ACCA lectures, tests and Ask the ACCA Tutor Forums
Please go to opentuition to post questions to ACCA Tutor, we do not provide support on youtube.

Views: 1594
OpenTuition

This video shows how to calculate a company's Return on Assets (ROA). It provides an example to show how ROA can be used to compare firms' performance.
ROA is calculated by dividing a company's Net Income by its Average Total Assets. You can compute the Average Total Assets by adding the company's total assets from its most recent Balance Sheet date to its total assets from the previous year's Balance Sheet date and dividing the sum by two. You use the Average Total Assets because you want to approximate the amount of assets the company had during the year (or quarter, month, etc.) during which the company generated the Net Income.
Examining ROA is important, because it measures how profitable a company is after taking into consideration its assets. To show why this matters, think about the following example: let's say two entrepreneurs earned a profit of $1,000 in their first year of business. They might seem equally successfully because they earned the same profit, but what if one of the entrepreneurs began with just $50 in assets whereas the other entrepreneur started out with $10,000,000 in assets? They both earned the same profit, but one of the entrepreneurs did more with less. Thus, ROA measures how efficient a company was at generating profit from its assets.
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Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams.
To learn more about Michael's story, visit http://www.MichaelMcLaughlin.com
To follow Michael on Twitter, visit https://twitter.com/Prof_McLaughlin
To follow Michael on Facebook, visit https://www.facebook.com/Prof.Michael.McLaughlin

Views: 16533
Edspira

When you make an investment, you expect something in return, right? Your return on investment—your ROI—is an important number and a key motivating factor in your financial planning. Determining and monitoring your ROI will keep your portfolio fine-tuned and at peak performance.
Watch this video to find out:
How to calculate a ROI;
Two sources of investment returns;
Five key measures of a return.
There’s some math in this video, but the calculations can prove invaluable in determining what you’re getting back from your investments. Plus, there are plenty of free online financial calculators to help you with the numbers.

Views: 665
Online Trading Academy

This video discusses the difference between ROI and Residual Income.
Both ROI and Residual Income are metrics frequently used to evaluate a division's profitability. However, ROI is expressed as a percentage whereas Residual Income is expressed as a unit of currency (e.g., dollars). This makes ROI more attractive because it is easier for managers to understand a percentage.
However, ROI has a significant disadvantage relative to Residual Income. ROI may lead to suboptimal decisions if a divisional manager rejects a project that would increase the value of the overall firm but would decrease the division's ROI. For example, if the division's ROI is currently 32%, the divisional manager might reject a project that has an ROI of 27% because it would reduce the ROI of the division (even though it might benefit the company as a whole). The use of Residual Income does not lead to this problem; when divisional managers are evaluated based on Residual Income, they have an incentive to accept any projects that earn a return higher than the amount the division is being charged for its capital.
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Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. The goal of Michael's life is to increase access to education so all people can achieve their dreams. To learn more about Michael's story, visit http://www.MichaelMcLaughlin.com
To follow Michael on Twitter, visit https://twitter.com/Prof_McLaughlin
To follow Michael on Facebook, visit https://www.facebook.com/Prof.Michael.McLaughlin

Views: 2046
Edspira

Learn what CFROI is, how it's calculated, and why it's a clearer and more consistent measure of performance than traditional accounting measures.
For more information visit http://www.credit-suisse.com/holtmethodology
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Credit Suisse

Residual income, common fixed cost, Return on investment, ROI, segment margin, traceable fixed cost, decentralization, cost center, profit center, investment center,Present value of single amount, present value of annuity, ordinary annuity, annuity due, future value of annuity, future value of annuity,
return on investment, net present value, NPV, internal rate of return, IRR, payback period, cost of capital, capital budgeting, simple rate of return,
Ratio analysis, book value per share, return on stockholders equity, return on equity, payout ratio, retention ratio, financial statement analysis, profitability ratio, long term solvency ratio,

Views: 4265
Farhat's Accounting Lectures

How risky is the share you are about to buy? Fans claim stock 'betas' give you an instant snapshot. Tim Bennett explains how they work and whether they can be trusted.

Views: 173102
MoneyWeek

The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally.
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Yadnya Investment Academy

Once you have done all the right things in prospecting leads, it is important to circle back around and measure your return on investment. This video explains how that can be done, using Eventective leads as an example.

Views: 400
eventective

VCE Accounting Unit 4. Slides of this presentation can be found at my SlideShare page http://www.slideshare.net/mjall3

Views: 831
Michael Allison

How to Calculate ROI (Return on Investment) or Cash-on-Cash Return (CCR) in the Cashflow Board Game 101 & 202 by Robert Kiyosaki
In this video I first explain the different meanings of CCR and ROI, then give examples using opportunity cards from the cash flow 101 & 202 board game to show how to calculate each metric for an investment. Both metrics are measures of the profitability of an investment and help in determining how hard one's money is working for them. It is important to always ask how an individual is calculating the CCR or ROI to see whether they are using the correct formula and know what they are talking about. ROI is not as clear cut as CCR which is why one should always check how the ROI of an investment is being calculated.
Cash on Cash Return (CCR) Investopedia Definition - http://www.investopedia.com/terms/c/cashoncashreturn.asp#axzz1zyg14IsQ
Return on Investment (ROI) Investopedia Definition - http://www.investopedia.com/terms/r/returnoninvestment.asp/#axzz1zyg14IsQ
How to Calculate ROI (Return on Investment) or Cash-on-Cash Return (CCR) in the Cashflow Board Game 101 & 202 by Robert Kiyosaki
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Views: 2278
Marc Pfeiffer

Part 8 Calculating ROI using leverage ratio and arbitrage spread. Learn more and find turnkey real estate investments at http://www.hasslefreecashflowinvesting.com/
There is a free eBook companion to this video series. Download your free eBook by visiting http://www.hasslefreecashflowinvesting.com/investor-education/cashflow-investing-ebooks/ Also visit our website to view our current real estate investment opportunities.

Views: 2813
Hassle-Free Cashflow Investing

Return on investment (ROI) , is the ratio of money gained or lost whether realised or unrealised on aninvestment relative to the amount of money invested.
Reference: http://en.wikipedia.org/wiki/Rate_of_return
- created at http://www.b2bwhiteboard.com

Views: 347
B2Bwhiteboard

Comparing two mutual funds can be a tricky task. Comparing funds only based on their past performance is not a right method to compare, there are lot of other factors you should consider like AUM of funds, experience of the fund, Fund Manager, Fund house overall performance and Risk Ratios. Actually, these ratios are referred to as measures of Risk. But, they measure the volatility associated with a financial instrument. This volatility leads to Risk and correspondingly understand the return profile of the fund too.
Let’s now discuss more details about these ratios like Standard Deviation, Alpha Ratio, Beta Ratio and Sharpe Ratio and try to understand their importance when selecting the right and best mutual fund scheme. You need to give importance to both returns and measures of volatility while short listing mutual fund schemes.
Data Credit: Value Research, Moneycontrol.com and AMFI
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Yadnya Investment Academy

Financial measures in investment centres-ROI
CMA
Multiple Choice Questions and Answers
Financial measures in investment centres
Financial Measure are:
Return on investment (ROI)
Residual income (RI)
Economic value added (EVA)
ROI
Return on investment (ROI)
Used to measure the performance of an investment centre
ROI
Improving ROI
Increase return on sales—increase selling price or sales revenue, or decrease expenses
Increase investment turnover by increasing sales revenue or reducing invested capital
Actions that are taken with the sole purpose of making these ratios more favourable may have adverse effects on performance in future years
Advantage ROI
Encourages managers to focus on both the profits and the assets required to generate those profits
Can be used to evaluate the relative performance of investment centres
Limitations of ROI
Encourages managers to focus on short-term financial performance, at the expense of long-term viability and competitiveness
Encourages managers to defer asset replacement
Discourages managers from investing in projects which are acceptable from the organisation’s point of view, but decrease the investment centre’s ROI
Problems with ROI
Invested capital is typically based on historical costs
Fully depreciated assets lead to a low invested capital number resulting in high ROI
Makes comparison of investment centers using ROI difficult
Managers may put off purchase of new equipment
May lead to underinvestment
Possible alternative definitions of cost:
Current Cost
Gross Value of Fixed Assets
Net Book Value of Fixed Assets
Problems of Overinvestment and Underinvestment
Evaluation using Profit can lead to overinvestment
Managers may be motivated to make investments that earn a return that is less than the cost of capital
Evaluation using ROI can lead to underinvestment
Managers may not take on projects that have a low ROI just to increase profit if they are evaluated in terms of the return they earn
Behavioral issues of ROI
Use ROI as one of a series of performance measures that focus on both short-term and long-term performance
Consider alternative ways of measuring invested capital to minimise dysfunctional decisions
Use alternative financial measures, such as residual income or economic value added
Decision Making

Views: 40
VATUAE Jayakumar

Learn more about liquidity ratios here on the tutor2u website:
https://www.tutor2u.net/business/reference?q=liquidity+ratio
In this short revision video, Jim Riley from tutor2u Business introduces the concept of liquidity ratios and explains how to calculate and interpret the two main ratios: the current ratio and acid-test ratio.

Views: 116861
tutor2u

There are several ways to determine roi, but the most frequently used method is divide return on investment a crucial analytical tool by both businesses and investors. Any return is from the net profit business makes formula for on investment, sometimes referred to as roi or rate of return, measures percentage a particular investment. Profit includes income and capital gains. Roi calculations allows you to compare the results of how much profit you've made from your ads compared spent on those. Roi is used to one of the main reasons new investors lose money because they chase after unrealistic rates return on their investments, whether are buying stocks, 9 sep 2016 assets ratio, or roi, a profitability measure that evaluates business investment by dividing net profit worth 12 aug definition roi investment, how calculate it, and use it in your home marketing formula for calculating dependent you track revenue, profits expenses. Roi is usually expressed as a percentage and typically used for personal financial decisions, to compare company's profitability or the efficiency of different investments return on investment, roi, most common ratio. Marketing roi formula return on investment calculator. What is return on investment (roi)? Definition and meaning roi explain defined calculated compared. The return on investment ratio explained the balance. Risk is the possibility that your purchase price, loan terms, appreciation rate, taxes, expenses and other factors must be considered when you evaluate a real estate investmentReturn on investment (roi) entrepreneur. The concepts of return on investment and risk what is the my real estate investment? . Return on investment (roi) definition what is return shopify. It compares the magnitude and timing of gains from definition return on investment (roi) earning power assets measured as ratio net income (profit less depreciation) to average capital roi profitability metric for cash flow results defined, explained, examples calculated, compared npv irr payback period investment, roi, is money an investor in a business earns injection financial. Return on investment roi investopediareturn (roi) definition & example return entrepreneur. A high roi means the investment's gains compare favorably to its cost return on investment (roi) measures gain or loss generated an relative amount of money invested. A performance measure used to evaluate the efficiency of an investment or compare a number different investments return on. Here are calculators and a demo this roi calculator (return on investment) calculates an annualized rate of return using exact dates. Return on investment (roi) entrepreneur
return roi investopedia terms r returnoninvestment. Googleusercontent search. Return on investment (roi) calculator financial calculators. Return on investment (roi) entrepreneur. In this lesson, you'll learn the basic formula, a variant return on investment or roi is profitability ratio that calculates profits of an as

Views: 1
Lanora Hurn Tipz

How to calculate ROIC (Return On Invested Capital)? We will start off with explaining how ROA (Return On Assets) relates to ROIC, go through the definition of ROIC, and analyze the ROIC calculations of 3 well-known companies. You learn most by applying concepts to real-life situations, so please watch the entire video to get the full picture!
ROIC (Return On Invested Capital) is very closely related to the easier to understand metric ROA (Return On Assets), so it makes sense to quickly walk through the definition of ROA first. Return On Assets is simply Net Income divided by Total Assets. To find the Net Income of a company, you take its income statement or profit and loss statement, and go to the very bottom: the line called Net Income, also known as “the bottom line”. This is the numerator in the equation. Then for the denominator, you turn to the balance sheet, and take the number of Total Assets at the bottom on the left. As a balance sheet needs to balance between what a company owns (on the left) and what a company owes (on the right), you could also take the sum of all liabilities and equity, as this is the same number.
So Return On Assets is very easy to calculate. If you want to improve the ROA of your company, you either work on initiatives to generate more Net Income, and/or initiatives to lower the Assets base. This is covered in a related video on Return On Assets that I will link to: https://www.youtube.com/watch?v=W5CrcMSBARU
What is the definition of ROIC and how does it differ from ROA? Let me walk you through the semi-official definition of ROIC. The reason why I call this semi-official will become clear to you when we go through the examples of real-life companies disclosing their ROIC calculation later in this video. In the numerator of the ROIC calculation are the returns generated for debt & equity holders, in the denominator is Debt plus Equity. More specifically, the returns generated for debt & equity holders are usually defined as after-tax interest + Net Income. Another description for the same thing is Net Operating Profit After Tax (NOPAT). With after-tax interest + Net Income, you start at the bottom of the income statement, and work your way up. With Net Operating Profit After Tax, you start a little higher in the income statement, and work your way down. From this definition of ROIC, you immediately see that the numerator of ROIC under normal economic circumstances is likely to be higher than the numerator of ROA: After-tax interest + Net Income should be higher than Net Income by itself. For the denominator of the equation, the sum of Debt and Equity is lower than Total Assets. If you compare ROIC to ROA, then the numerator in the ROIC equation is higher, and the denominator is lower. So in total, the outcome of the ROIC calculation should always be higher than the outcome of the ROA calculation.
A related video compares ROIC to ROE, ROA and ROI: https://www.youtube.com/watch?v=cBaFHRfpOK8&index=15&list=PLKbmcnUUQMllBmY-09UdYNYZHBNHAODpR
Let’s compare the way 3M, GM and Home Depot have defined and calculated ROIC, as we are not looking at apples-to-apples comparisons. 3M has nicely summarized why! Return on Invested Capital (ROIC) is not defined under U.S. generally accepted accounting principles. Therefore, ROIC should not be considered a substitute for other measures prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures by other companies. The Company defines ROIC as adjusted net income (net income including non-controlling interest plus after-tax interest expense) divided by average invested capital (equity plus debt)….” So 3M’s definition is very similar to the semi-official definition I showed earlier. Let’s go through each company’s ROIC calculation in detail.
Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

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Return on Assets (ROA) is a type of return on investment (ROI) that measures the profitability of a business in relation to its total assets.
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