What are the return on investment and how is it determined? Return on investment is a ratio of investment and net profit. A high ROI simply means that the total profits of an investment more than its cost represent a high return. ROI as a financial measurement is usually used to compare the economies of various investments or to assess the efficiency of particular investments. The concept of ROI has both financial and technical dimensions.
Technical means “function”, in the technical sense. This definition is not the same as “apparent value”. Apparent value refers to what the investors think their money would be worth in the market at the time of purchase. For example, if an investor were considering an initial investment of X dollars, and Y dollars later, he or she could calculate what is return on investment using the formula: Y * X = revenue. However, since actual values cannot be known at an earlier time, the formula cannot be used. What is the return on investment is the expected profit over the period of investment.
It is important to note that what is returned is different for everyone. If Y is a large amount, then it would take a long period of time to recoup the initial investment and therefore would be considered a bad investment in the long run. Thus, what is the return on investment is not necessarily directly related to the profits of the initial investment, but the ROI represents future revenues. For example, if the company increases its stock price in a successful deal, then its share price may become “trend-rebound”, meaning the price will increase again in the future.
Return on equity (ROE) is different from what is return on capital because it considers current market value of the company’s equity. Thus, what is return on equity does not include the depreciation that occurs over time as a result of changes in equity values. For this reason, it does not include the cost of capital that would affect the cost of the initial investment. Thus, it includes only those costs associated with an ongoing venture. A comparison between ROE and return on equity would be to find out if an increase in capital is better than an increase in earnings per share (EPS).
The profit margin, also called gross profit, is what is termed the company’s gross profit. This represents all income not just from the sale of product or services but also from the operation of the business. In businesses where a company is only one person, like a sole proprietorship, what is the return on equity would be the gross profit divided by the number of employees working in the business. However, if the business has many employees, then the profit margin will have to be calculated based on the gross profit of each employee. For example, if there are 20 employees and the gross profit per employee is $100, then the profit margin per employee would be 20 to $100 or approximately $200.
The cash flow, also known as net worth, is the difference between the market value of the equity and the current value of the net worth – the difference between assets and liabilities. An investment in equity is very risky because there is significant risk of not being able to recoup what is invested. In contrast, a low-risk investment in fixed assets like fixed income bonds would have a lower risk and a smaller potential for loss. However, what is return on equity? It would include the operating expenses necessary to conduct a business.
In order to determine what is return on equity? A simple calculation is to determine the current market price per share (the cost of trading in the stock) times the current total outstanding capitalization or EAC, times the current dividend per share, times the company’s retained earnings per share (the amount paid out to shareholders on a regular basis), and times the market capitalization of the company. Multiplying these figures by the current market price per share gives the shareholders the value of their shares. There are many technical reasons why some companies’ stock may rise and others may fall. However, one of the most basic reasons is the economy.
When economic conditions change, companies’ stock prices can either drop or spike. Investors need to understand what is return on equity? The stock market does have a long term impact on a company’s value. However, it may not be the sole or major determinant of the value of a company’s stock. The stock market’s fluctuations affect the economy and therefore the value of the stock, but it cannot be relied upon alone.