Importance of return on investment

Return on investment (ROI) refers to the value that should be returned through investment, that is, the economic return that an enterprise gets from an investment activity. It covers the profit target of the enterprise.

Profit is related to the property necessary to put into operation, because managers must make profits through investment and existing property. Investment can be divided into two categories: industrial investment and financial investment. People usually say that financial investment mainly refers to securities investment.

There are three main analysis methods of securities investment: basic analysis, technical analysis and evolution analysis, in which the basic analysis is mainly applied to the selection of investment objects, while the technical analysis and evolution analysis are mainly applied to the temporal and spatial judgment of specific investment operations as an important supplement to improve the effectiveness and reliability of investment analysis.

First, advantages

The rate of return on investment can reflect the comprehensive profitability of investment centers, and it has horizontal comparability because it eliminates the incomparable factors of profit difference caused by different investment amounts, which is conducive to judging the operating performance of each investment center. In addition, the investment profit rate can be used as the basis for choosing investment opportunities, which is conducive to optimizing resource allocation.

Second, shortcomings.

The deficiency of this evaluation index is the lack of overall concept. When the return on investment of an investment project is lower than that of the investment center and higher than that of the whole enterprise, although the enterprise wants to accept the investment project, the investment center may refuse it; When the return on investment of an investment project is higher than that of the investment center and lower than that of the whole enterprise, the investment center may only consider its own interests and accept it, regardless of whether the overall interests of the enterprise are damaged.

Third, how to calculate the return on investment: Some insiders told us a formula for calculating the return on investment:

Calculate the return on investment after purchase and re-lease = monthly rent × 12 (month)/selling price.

Calculate the return on investment after buying and selling = (selling price-buying price)/buying price.

For example, there is a street shop with an area of about 50 square meters and a price of about 2 million. The monthly rent of the same property around this property is about 400 yuan/square meter, that is to say, if this shop is bought and successfully rented, the new owner may get a monthly rent of 20,000 yuan. So, what is its return on investment? Calculation: Apply the above calculation formula: the return on investment of this property = 20,000 yuan ×12/2 million yuan. Through calculation, the return on investment of this property will be: 12%. If this investor is released and trades at 2 150000 yuan, its return on investment will be = (2 15-.