(RETURN ON INVESTMENT)

WHAT IS INVESTMENT
Can be in following form:
• Capital
• Assets
• Principal amount
• Other…
 Definitions of ROI
• it is the ratio of money gained or lost (whether
realized or unrealized) on an investment relative
to the amount of money invested.
• It is the ratio between the financial benefit or loss
of an investment and the amount of money
invested.
• It is a measure of the performance of any
investment
 Characteristics of ROI
• Can be profit or loss

• Can be fixed or non fixed

• Helps in comparison

• Does not indicate the duration

• Expressed as a percentage (%)

 Form of ROI
• Dividend

• Interest

• Profit/loss

• Capital gain/loss
 Calculation of ROI
FORMULA –

ROI = Net Income x 100

(Cost of Investment)

NET INCOME = (Income from investment – Cost of

Investment)
 Example of ROI(GAIN)
• Our investment = 2’00’000/-
• It became after sometime = 2’20’000/-

• ROI = 220000 – 200000 x 100

200000

= 10 % (profit)
 Example of ROI (LOSS)
• Our investment = 2’00’000/-
• It became after sometime = 1’80’000/-

• ROI = 180000 – 200000 x 100

200000

= 10 % (loss)
 Uses of ROI
• To compare profitability of company

• To compare different projects

• Personal financial decision

• It is a measurement of cash

• To assist in evaluating on opponent’s of profitability

 Thumb rules of ROI
• Rule of 72

• Rule of 114

• Rule of 144
 Impact towards third party
(society)
• It will create a positive image.

• It will increase people interest.

• It will increase share prices of co.

• It will increase premium of shares.