Return on investment
Encyclopedia
Return on investment is one way of considering profits in relation to capital invested. Return on assets (ROA), return on net assets
(RONA), return on capital (ROC) and return on invested capital (ROIC) are similar measures with variations on how “investment
” is defined.
Marketing not only influences net profit
s but also can affect investment levels too. New plants and equipment, inventories, and accounts receivable are three of the main categories of investments that can be affected by marketing decisions.
In a survey of nearly 200 senior marketing managers, 77 percent responded that they found the "return on investment" metric very useful.
, ROC
, RONA and ROIC) provide a snapshot of profitability adjusted for the size of the investment assets tied up in the enterprise. Marketing decisions have obvious potential connection to the numerator of ROI (profits), but these same decisions often influence assets usage and capital requirements (for example, receivables and inventories). Marketers should understand the position of their company and the returns expected. ROI is often compared to expected (or required) rates of return on dollars invested.
Return on net assets
The return on net assets is a measure of financial performance of a company which takes the use of assets into account.-Formula:Return on net assets = Profit after tax /...
(RONA), return on capital (ROC) and return on invested capital (ROIC) are similar measures with variations on how “investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
” is defined.
Marketing not only influences net profit
Net profit
Net profit or net revenue is a measure of the profitability of a venture after accounting for all costs. In a survey of nearly 200 senior marketing managers, 91 percent responded that they found the "net profit" metric very useful...
s but also can affect investment levels too. New plants and equipment, inventories, and accounts receivable are three of the main categories of investments that can be affected by marketing decisions.
In a survey of nearly 200 senior marketing managers, 77 percent responded that they found the "return on investment" metric very useful.
Purpose
The purpose of the "return on investment" metric is to measure per-period rates of return on dollars invested in an economic entity. ROI and related metrics (ROAROA
ROA can refer to:*Rehabilitation of Offenders Act 1974, in the United Kingdom*Removable Orthodontic Appliance, a type of tooth-straightening device* The IATA code for Roanoke Regional Airport in Roanoke, Virginia, USA.*Return On Assets, a financial metric...
, ROC
ROC
Roc may refer to:*Roc , a mythical giant bird*Roc , a role-playing version of the mythical bird*Roc , an American television sitcom starring Charles S...
, RONA and ROIC) provide a snapshot of profitability adjusted for the size of the investment assets tied up in the enterprise. Marketing decisions have obvious potential connection to the numerator of ROI (profits), but these same decisions often influence assets usage and capital requirements (for example, receivables and inventories). Marketers should understand the position of their company and the returns expected. ROI is often compared to expected (or required) rates of return on dollars invested.
Construction
For a single-period review just divide the return (net profit) by the resources that were committed (investment):- Return on investment (%) = Net profit ($) / Investment ($) * 100 %