Overview ON Rate of return on investment

In this article we will discuss the rate of return on investment based on the visitor's research, some visitors are interested in the rate of return on investment from a simplified research and others are interested in the rate of return on investment from a broad research


The simplified thesis is

The concept of a return on investment when used in electronic campaigns (ROI).


The broad ergonomicist is

The concept of return on investment when used in business management, finance and financial analysis.


And we will discuss in this article these two topics with a simple and clear explanation

Clarify the meaning of the rate of return on investment

The main objective of any investment is to get a return from this investment, when you create a business you are waiting for a return from it, and to measure this return on investment rate, which is known as Return on Investment, which is the shorthand (ROI), the return on investment is the best way to measure profitability and management performance, which is a measure that reflects all aspects of the business within the management and is a better measure of profit than the same as the return on investment considers that investment is the basis for generating profit.

Return on investment = net profit/total investment costs.
Return on investment=(total investment income - total investment costs)/total investment costs.

For example: you are conducting an online marketing campaign and the cost of this campaign was $1500 and you generated revenue from this campaign $2000, what is the rate of return on investment?

Return on investment=(total investment income - total investment costs)/total investment costs.
Return on investment =(2000-1500) / 2000 = 25%

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That is, every dollar spent on e-campaigns will receive a quarter of a dollar in return for a net return.

In the previous lines we addressed the simplified research and since you reached this extent in this article you must have understood what is the rate of return on investment, and in the next lines we will address the broad research rate of return on investment


Rate of return on investment and business management


Senior management is concerned with the overall performance of the organization and therefore needs a standard that reflects all aspects of the work within it. The rate of return on investment is useful in this regard in terms of:
the number of capital turnovers. To what extent does the organization achieve a sales figure that achieves a turnover rate of capital that is consistent with the conditions of industry and trade to which it belongs.


Working capital turnover = net sales / average working capital in the same year
The average working capital is (working capital at the end of the current year - working capital at the end of the previous year)/2


The turnover of capital may turn out to be slow because the capital is too much or the organization's ability to achieve an appropriate sales figure is limited.
 the amount of profit achieved and the profit rate on sales and this reflects the pricing system.
 financing policy and components of working capital.

This criterion (rate of return on investment) can be used to determine the reasons for its decline and not to match the industry rate in terms of:
1 - Accumulation in inventory.
2- Expansion of forward sales reflects the inability of the organization to collect.
3- Availability of untapped cash overthe necessary.
4- High production costs.
5 - A rise in normal expenses.
6 - A rise in sales transfer expenses.
7 - Inflation in administrative expenses.


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Rate of return on investment and financing

Financial ratios:


Financial ratios can be divided into four basic groups:

Liquidity ratios.

Activity ratios.

Debt ratios - leverage.

Profitability ratios.

It is also added a set of ratios to measure market value.

Profitability ratios are divided into:

A- Margin of total profit
B. Operating profit margin
C. Net profit margin
D- Rate of return on investment and "De Pont equation".
E. Rate of return on equity and "modified De Pont equation"
Earnings per share


The rate of return on investment "the equation de pont".

The rate of return on investment, which we usually call return on total assets, measures the overall efficiency of management by generating profits in the light of the assets available to it, the higher the return on investment rate, the more efficient it is, the better the company.

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Rate of return on investment = Net profit after tax / Total assets

If the net profit after tax in Company X is equal to $231,000, the total assets are $3,597,000 and the total sales are $3,074,000, then the rate of return on investment is equal to?

The company's "X" return on investment rate = 231/3597 *100=6.4%




* Equation de Pont:

To calculate the rate of return on investment:

Rate of return investment = net profit margin * turnover rate of total assets