is a term by which we can understand the benefit level of any investor. When a person invest his money in a particular investment policy that time it is not clear that whether he will face profit or loss, by this ROI you can understand the rate of profit of any particular policy. In this system the return amount of the policy is compared with the capital amount which is invested first.
Life is very much unpredictable so, it is not possible to understand surely whether you are going to face profit or face loss in a particular investment policy. But always you have to read all market related papers when you are deciding to invest your money in a particular investment policy. ROI sometimes can help you to assume your business position whether you are in a right track or not.
Different ways to find profitability of your investment in your business
There are several methods of Return on Investment which will help you to calculate the profitability standard of your investment. These are as following
- Firstly you can measure the pricing policies of your business.
- Then you should check the investments you have done in the inventory.
- You can divide the net income, taxes and interests by the full amount of liabilities and thus you can get the earning level of capital amount.
- You can divide income taxes and net income by fixed liabilities and proprietary equity to generate the earning rate.
These are the very simple calculations by which you can measure the rate of profit of your invested capital. But you may face several risks also when you are using Return on Investment as a tool to measure profit. Like, if the amount of investment is very high then the result of ROI may not be exact so, you should not believe in its result blindly.