What Is Return On Investment (ROI)?
Return on investment is a performance measure that can be used to compare several investments. ROI is calculated as net income of an investment divided by the cost of the investment.
ROI = Net income / Investment cost
where
Net Income = Income from the investment - Investment cost
ROI is usually noted as percentage, meaning that 10% of gives us 10 cents per each dollar of investment. If you would like to have ROI as percentage then you should calculate it as:
ROI = (Net income / Investment cost ) x 100.
For example if Net income is 1,200$ and Investment cost is 10,000$, then ROI is 1,200/10,000 = 0.12 or stated as percentage ROI is 12%.
If ROI is negative then the investment should not be considered because the investment is a loss. If ROI is positive then investment is profitable. Higher ROI is better than lower ROI. A project with the highest ROI will have the highest profit rate.
Other measures than money can be used to measure the cost and the income. That is the reason that ROI is very flexible and can be manipulated. Therefore, it is necessary to know how the ROI is calculated, i.e. what are the costs and what are the income? For example, the Accounting ROI is equal to the net income divided by the total assets. ROI works just fine if income and outcome can be easily identified.
ROI can be also used with not so precise definition of income and outcome. One could consider customer satisfaction, accuracy, average shopping chart or something else. For example one could calculate ROI for Customer satisfaction (where CS is short for Customer Satisfaction) like this:
ROI = Change in customer satisfaction / Investment cost
where
Change in customer satisfaction = CS after investment - CS before investment.
What should you do with ROI? First of all, if you have only one investment ROI could only show if your investment is profitable (ROI > 0). If you have several investments and you consider terminating one, probably you should terminate the one with the smallest ROI. Also, if you have several investment opportunities, you should choose the one with the highest ROI. Of course you should consider other factors involved, such as risk, necessary minimum amount for investing, your portfolio...
Zoran is a freelance author focused on investing basics. You can read and subscribe to his blog at http://gtdinvest.blogspot.com
Article Source: http://EzineArticles.com/?expert=Zoran_Maksimovic
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The Onset of Any Investment
By: William Tan
If you want to be serious in trading, you must look at trading as a business. Before you set up any business, planning is essential. Although tempting, before you pour your hard-earned savings into this venture, the first step is to establish your investment goals and objectives. It is best to have this written down because there will be moments that you will forget your goals and purpose of investing.
Keep your "mission statement" of this business as simple as possible. Each time you feel that you are losing your discipline; this is the time to refer to your goals that you have set.
As a guideline, decide on what you would like to achieve financially. Develop a plan, tactic or method to achieve your goals. The method that you choose or develop must have a proven track record for you to eventually arrive at your destination.
Your mission statement should contain, but not limited, to the below:
- What is your Target Net Worth (set a realistic goal)? - What is your target Monthly Residual Income? - What is your initial investment capital? - How much would you allocate a month from your savings in this new venture? - How much time will you allow for this investment to mature? - How much time per day would you allocate to achieve the above goals? - What type of investment vehicle would you specialize in?
When setting your target net worth, set a goal that is achievable. Of course, it is always in many of our dreams to be a multi-millionaire. Set an initial achievable goal as a stepping stone. Periodically, you can always review and revise your goal. For example, if you currently are starting out with $10,000, you may want to be realistic by setting an initial 3 year goal of $50,000, which would represent a 500% return on investment. After the initial goal has been accomplished, you may then set a bigger goal. If you arrive at this goal before the 3 years is up, you can always review and re-set a new goal. Setting achievable goals will keep you motivated to strive further with your investments.
Investing can be risky no matter how safe it looks. Always use only risk capital for all your investments. Risk capital is money that you can lose without affecting your lifestyle. If you need these funds for your next meal, your kids education, or to pay your house rent (you get the idea), then please refrain yourself from investing. Risk capital should only be a small percentage of your monthly savings. For example, if you currently save $1000 per month, you may want to allocate 20-30% of your monthly savings for investment purpose. It is prudent to be conservative while taking risk. You do not want any bad investment to ruin your current lifestyle.
Establishing the "big picture" before you start trading or investing will provide you a roadmap as a reminder of why you even bother putting your hard-earned money at risk.
CASHFLOW AVENUE is established to provide Low-Risk Options Trading Recommendations to aid self-directed traders in their pursuit of financial freedom and a better lifestyle. For more information on our trading approach, visit http://www.cashflowavenue.com
Article Source: http://www.ArticleBiz.com
8:36 PM | 0 Comments
How To Calculate The Return On Investment
Determining what your return on investment is has become a major part of any investment review, and it should be. No matter what you are investing in, whether it is a savings account or real estate, stocks or new business ventures, knowing the return on investment will better help you make important investment decisions. There are many ways that people calculate the return on their investment, but the annual percentage yield return on investment calculation is the one that is used the most.
The first step in the calculation is to figure out exactly what costs you have into the investment. Are there any upfront costs, maintenance fees, taxes or other fees, and how much time you have invested. Make sure that you list all costs, even hidden costs, because these are costs needed to retain the value of your investment.
Next you have to calculate or estimate any returns on the investment. How much money will you receive from the investment, and when will you receive it? List all revenue you will receive from the investment, whether it is monthly rent for a real estate investment or dividends for a stock investment.
Now you have to establish a cost and return timeline. List in chronological order any costs and returns that you have from the investment. Use positive numbers for returns and negative numbers for costs on the investment. Now the complex formula is applied which looks like this: APY=final return/initial investment^365/days of investment-1. This basically means that you take the final dollar return amount and divide it by the initial investment. This number is raised to 365 which has been divided by the number of days it took you to complete the investment. This number is reduced by one and then divided by one hundred to get the annual percentage yield. This is your return on investment in a percentage form.
Knowing how to calculate the return on an investment is an important skill for any investor who wishes to be successful. This is a calculation used by investors to compare various investment methods and choose which methods are right for them. The return on investment will let an investor compare investments to examine which investment pays more overall, and has a better return. This allows investors to choose investment methods that have a higher return, which means a higher profit. This formula is one that every investor should know and use.
Determining what your return on investment is has become a major part of any investment review, and it should be. No matter what you are investing in, whether it is a savings account or real estate, stocks or new business ventures, knowing the return on investment will better help you make important investment decisions. There are many ways that people calculate the return on their investment, but the annual percentage yield return on investment calculation is the one that is...
Author
Joel Teo writes on various financial topics including Las Vegas Real Estate . Learn about Las Vegas Real Estate Investment at http://www.RealEstateInvestment101.info
Article Source: http://www.eArticlesOnline.com
8:53 AM | 0 Comments
