Return On Investment simplified

ROI

According to Patricia Pulliam Phillips, Jack J. Phillips (2006), return on investment is a practice that compares revenues and investments giving an economic indication of the project. ROI is the definitive degree of accountability.

They further go on to say that, ROI provides a similar indication of the success of the investment as the cost-benefit ratio, CBR.

CBR      = program benefit / program cost

ROI (%) = (Net program benefit / net program cost) * 100

100% ROI means that for every kes. 1 invested we get kes. 1 of return after meeting the all the cost.

Since profitability is measured against net income to investment, managers are encouraged to use assets at optimal levels to earn maximum profits. They are able to determine when the business should acquire and dispose of capital assets and in what quantities. ROI on a specific level of investment ensures effective exploitation of existing investments (Agarwal, 2015).

Agarwal, 2015 argues that individual ROI achievement in the business under every department

generally improves the overall ROI of the whole business. Moreover, owners of the business are able to compare ROI in the different departments and the overall ROI of the business against others in the same industry.

References

Agarwal, R. (2015). Return on Investment (ROI): Advantages and Disadvantages. Accounting. Retrieved May 22, 2016, from http://www.yourarticlelibrary.com/accounting/return-on-investment-roi-advantages-and-disadvantages/52928/

Patricia Pulliam Phillips, J. J. (2006). The basics. In Return on Investment (ROI) Basics (pp. 1-3). American Society for Training and Development. Retrieved May 21, 2016, from https://books.google.co.ke/books?id=PVZBteSXSIcC&printsec=frontcover&dq=return+on+investment&hl=en&sa=X&redir_esc=y#v=onepage&q=return%20on%20investment&f=false

 

Advertisements

One thought on “Return On Investment simplified

  1. Hey there! Fantastic content! I really enjoy the way in which specified Return On Investment simplified. My family and I quote this author offers you huge knowledge of content creation and also writing ability.
    Are you able to give away a lot of areas of advice about proven methods to advance way with words-at all?
    I am very bad as a writer and then it’s commonly tough considering that instructors of your or perhaps all the time offer producing homework.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s