Return on Investment

Return on Investment
While IT remains a hot investment, venture capital investors are returning to basics when they analyze new opportunities.

Return on investment or ROI is a figure of merit used to help make capital investment decisions. It is calculated with the formula:

(annual profit)/(investment capital)

In this equation, the annual profit is the expected annual profit from operations and normally does not include profit from financial operations unless they are the main object of the business

The term ROIC is an acronym for Return on Invested Capital.

The Callan periodic table of investment return provides a comparison of the historical return of investments of various segments of the US stock market.

The concept of return on investment is a very general business concept that is used in all industry branches, from project management to real estate, and from Ecommerce to stock investment, home improvement, human resource training, home remodeling or internet marketing. Calculations are normally based on capital invested, and profit, but they can also be made using gross margin and cash flow. You do not need a sophisticated calculator to calculate a ROI (a simple excel spreadsheet is sufficient in most cases), but advanced financial calculations such as monthly average or annualized investment returns can be quite tricky. In general, the investments with highest investment returns involve more risks.

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