“Return on Investment is a single comprehensive measure that contains everything happening within the organisation” Explain the statement and illustrate its computations with imaginary figures.
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Return on Investment abbreviated as(ROI) is a measure of business success which realates net income to invested capital or assets.ROI provides a standard for evaluating average unit of currency invested in assets. Weather the investment comes from creditors or owners.Calculating Return on InvestmentThere are two ways namely, the traditional formular and the Dupont formular.
Example 1ROU=Net Profit After ÷Taxes Total Assetsi.eCompany with $100000 in assets and $18000 net profit after tax would have ROI of 18%.
Example2DuPont Formula:ROU=(Net Profit Margin)x(Total Asset Turnover)ROI=(Net Profit After Taxes÷Sales)x(Sales÷Total Assets) If sales are $200000, Net profit margin is 9% and the total asset turnover is 2. It still yield a ROI of 18%,ROI=MxT18% = 9% x 2 18% = 6% x 3 18% = 3% x 6 18% = 2% x 9
Example 1ROU=Net Profit After ÷Taxes Total Assetsi.eCompany with $100000 in assets and $18000 net profit after tax would have ROI of 18%.
Example2DuPont Formula:ROU=(Net Profit Margin)x(Total Asset Turnover)ROI=(Net Profit After Taxes÷Sales)x(Sales÷Total Assets) If sales are $200000, Net profit margin is 9% and the total asset turnover is 2. It still yield a ROI of 18%,ROI=MxT18% = 9% x 2 18% = 6% x 3 18% = 3% x 6 18% = 2% x 9
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