Return On Investment – when selecting investments, the novice investor is obliged to know how to calculate the potential profit from the investment formula. This is to ensure that capital is issued accordingly with the advantages to be gained.
Unfortunately, many investors are newbies who just focus on net profit, but does not take into account the Return on Investment (ROI).
Do not take into account the focus of ROI in the selection of the type of investment will bring trouble in the future, especially if the chosen investment never brought the desired results.
Analysis Of The Ratio Of Return On Investment, ROI
How to calculate the potential profit from Investment
Why should Calculate ROI and profit potential
In investment, the capital you spend to finance such investments should be counted in the calculation of the investment profits.
ROI can be described as a ratio of capital you spend for investment than the investment profits.
Calculate the ROI is very important because it determines your ability to develop those investments in the future, rather than simply running it (because it requires additional capital investment if you want to expand it). Do not take into account the focus of ROI in the selection of the type of investment will bring trouble in the future, especially if the chosen investment never brought the desired results.
Novice investors often focus solely on net income from its investments, even though the ROI is important in the calculation of the development investment.
Just because the amount of income the investor A is greater than B, it does not mean investors the investment potential in the future.
For example, if investors earn A 100 million but his ROI only 20 percent, and investors B earn 75 million but his 100 percent ROI, then the investor B has the potential to develop greater benefits in the future.
In other words, the calculation of ROI is a way to take into account the potential benefits of investing in the past, present, or future.
If ROI investor B could reach 100 percent, then the investor B would be able to develop its investments in the future while keeping investments now in order to keep going.
Meanwhile, a low ROI from investors A profit rate shows a slower, so it will likely be difficult to develop business in the future unless the investor A could fix this and do a variety of efforts to improve His Return On Investment.
How To Calculate ROI
Although ROI is usually expressed in the form of a percentage, a period of ‘ ROI calculations tend to not set up tight.
Most investors are usually based on the annual period in terms of calculating ROI for easy.
In General, the formula of calculating the ROI is the number of total sales minus the cost of the investment, then the result is divided by the cost of the investment, then the result is multiplied by one hundred percent.
The results of this sale can be calculated from the annual sales, to make it easier. If illustrated, the formula is as follows:
Investors with investments of over 10 million issued (10 million dollars). Investment income during the year reached 15 million (15 million dollars). ROI is:
(15 million – 10 million)/10 million x 100% = 0.5 x 100% = 50%.
Now, imagine an investor B removing the investment of 5 million (5 million dollars).
Investment income during the year reached 13 million (13 million dollars). ROI is:
(13 million – 5 million)/5.000.0000 x 100% = 1.6 x 100% = 160%
In comparison, investor B removing the smaller capital investment results and also less than the investor A, but the percentage of ROI in a year turns out to exceed the investor A.
In this case, the investor B has the potential to develop its investments in the future, unless the investor is A sure to improve methods and increase the percentage of Return On Investment.
ROI as a benchmark investor to Develop Business
Entrepreneur or investor who is interested in maintaining his business in a long time must always calculate ROI time checking my calendar fiscally.
ROI gives an illustration of how business or investment can be developed because the development means the obligation to issue capital.
If the investment profit margin is very small so that his ROI is not adequate, it will be difficult to develop an investment because the capital is used for investment or managing an existing business.
In order to make it easier to calculate ROI, especially if you are an individual investor, be sure to set a fiscal calendar for a fixed period, such as annual.
You then can use the advantages of investment per year to calculate ROI. By calculating the potential profitability of the investment formula together ROI, you will get a more accurate picture of the investment potential in the future.