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Friday, May 6, 2011

Return on Investment Ratio Analysis

Return on Investment (ROI) is a financial ratio used to evaluate the efficiency of an investment or to evaluate how efficiently the firm uses every dollar invested in assets.

Formula:
Return on Investment = (Gain - Cost of investment) / Cost of investment
Or,
ROI = Net Profit After Taxes / Total Assets
Or,
ROI = Net Profit Margin * Total Asset Turnover

Example 1:
If a company has total assets

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