 View Question
Q: ROI calculation formulae ( Answered ,   0 Comments ) Question
 Subject: ROI calculation formulae Category: Business and Money > Finance Asked by: tvr-ga List Price: \$3.00 Posted: 28 Jun 2003 13:46 PDT Expires: 28 Jul 2003 13:46 PDT Question ID: 222921
 ```I have come across different formulae for calculating the ROI (return on investment) for any business activity. For example, the most simplest formula for calculating ROI seems to be: (E/I -1) where E: earnings, I: investment and it gives the ROI as a percentage. I am interested in finding out two other most commonly used simple formulae and at least one complex formula that takes several variables into account. Thanks.``` Subject: Re: ROI calculation formulae Answered By: cynthia-ga on 01 Jul 2003 11:23 PDT Rated: ```Hi tvr, This first page has several great articles for you: ROI Resources - Quantitative ROI http://216.239.57.100/search?q=cache:Qr8z5x_HfnMJ:www.oakenterprises.com/roi.asp+%22ROI+formulas%22&hl=en&ie=UTF-8 From that page, there is a formula is at this link specifically: http://www.darwinmag.com/read/030102/roi_sidebar2.html Here's a PDF document that discusses Performance-Based ROI http://www.karlkapp.com/ROI.pdf Scroll down for the formula. Eeeny Meeny Miney Moe: Which ROI Formula Do You Use? http://www.syrtis.com/elumination/Archives/2002/Mar02/3-3-0-0.htm ..."(T - E) + R = ALE "T" is the cost of new training/learning. "E" is the dollar savings recovered from existing training/learning. "R" is the cost of non-training initiatives (work harder/overtime, hire more people/added salaries, etc.). "ALE" is the Annual Loss Expectancy yield (the amount of money you will lose due to training and non-training initiatives). To determine the return on training investment, divide the expected annual loss (ALE) by total revenues realized after implementing the new training/learning solution..." Other ROI discussions at that site: http://216.239.57.100/search?q=cache:V14M0mMieoEJ:www.syrtis.com/elumination/Archives/2002/Mar02/+%22ROI+formulas%22&hl=en&ie=UTF-8 Here's a link to an ROI calculator that you can download: Return on Investment: What is ROI analysis? http://www.solutionmatrix.com/roigo.html ..."Simple Return on Investment Return on investment is frequently derived as the “return” (incremental gain) from an action divided by the cost of that action. That is “simple ROI”. For example, what is the ROI for a new marketing program that is expected to cost \$500,000 over the next five years and deliver an additional \$700,000 in increased profits during the same time? Simple ROI = (Gains - Investment Costs)/Investment Costs..." For an example, download the calculator an enter your own numbers: Here's another one that calculates the ROI of the cost of education: Let's Do The Numbers http://216.239.57.100/search?q=cache:xdMkEhK7AMMJ:www.search4careercolleges.com/articles/roi.asp+%22ROI+formula%22&hl=en&ie=UTF-8 ..."Our formula for ROI calculates this rate of return, which is represented by X in the following equation: X = (I/C+L) + G ..." A complex formula taking several things into account: To Buy or Not to Buy? http://www.entrepreneur.com/Your_Business/YB_SegArticle/0,4621,301024,00.html ..."Expressed in a formula, ROI is calculated as follows: ROI = -PV + ? (Y x (1 - t)) / (1+r)n + ? D x t / (1+r)n + FV/(1+r)n - ((FV - NBV) x t )/ (1+r)n Where: PV = Purchase price of the asset Y = Income (or savings) over the life of the asset D = Annual depreciation r = Risk-free rate t = Tax rate n = The life of the asset (or hold period) in years FV = Future Value of the asset when sold (or salvage value) NBV = Book value of the asset after depreciation If you divide the ROI by the PV, you will get the ROI percentage..." This White Paper looks worth reading as it discusses the common shortfalls of standard ROI calculations: CTP Economics: Looking Beyond ROI (\$29.95 to buy report) http://216.239.57.100/search?q=cache:RTOM2V1kNycJ:www.seyboldreports.com/SRPS/3007page1.html+%22ROI+formula%22&hl=en&ie=UTF-8 ..."An investment in new equipment (even CTP gear) is always a risk. Although you can't eliminate uncertainty about the technology, market demand or future innovations, you can at least measure and control the financial hazards. But the common ROI formula, which divides expected revenues by purchase cost, almost never gives you a true measure of risk and reward. Far better is a tool called Net Present Value, which takes into account the length of time before you get your money back and lets you quantify the risk you are running. We tell you how it's done..." Hope this helps... For more, you can go to Google's main page and enter the search strings below and peruse the results for even more examples... If I can be of further assistance, please don't hesitate to ask for a clarification before rating my answer, ok? Sincerely, ~~Cynthia Search strategy used at Google: "ROI formula" "ROI calculator" standard "ROI formulas" example "ROI formulas" sample "ROI formulas"```
 tvr-ga rated this answer: `Provided specific answers`  