There are a number of methods that allow you to assess the effectiveness of a particular enterprise.One of the most popular methods, which in this case can be called one of the easiest, is to calculate profitability.By determining the profitability estimated production and marketing activities of the company, the degree of efficiency of the use of assets and equity, and more.One of the most important indicators of this group is the index of return on investment, and on it we will focus in more detail.
As can be seen from the name, the index of ROI provides a measure of the effectiveness (profitability) of certain investments.This indicator can be used for both financial and for real investment.However, the calculation in each case may be different in some way.The main difference is that in determining the profitability of investments in certain financial instruments often do not take into account the time factor.This is due to the fact that such investments are usually carried out on a much shorter time than real investments.
Index ROI, like any other rate of return, is the ratio of profit to a specific indicator.In this case, the gain is compared to the investment.In the case of financial investments, such as the acquisition of a particular variety of securities, the calculation is as follows: the numerator is the total amount of income derived from the ownership of securities (interest income and the difference between the purchase and sale), and the denominator - pricepurchase, ie the initial investment.
In the case of a project related to the implementation of real investments, the calculation of the index is considered somewhat more complicated.Taking into account the time factor, it is necessary to divide the value of the discounted cash flow for the analyzed period in the discounted amount of investment over the same period.It should be noted that this ratio is set that uniquely indicates the effectiveness or ineffectiveness.This value is equal to 1. Accordingly, if the resulting index is greater, then the project should be taken, if less - reject.In the case of a factor equal to one, you must take into account the presence of other positive effects besides the economic.Obviously, this ratio can be calculated in a different way, namely, by the attitude of the net present value of the current date to the value of the discounted investments.The resulting value will be increased by one.Based on the foregoing, it can be concluded that such factors as the NPV and profitability index are interconnected.A negative current value of the index return on investment of the project is less than one, and vice versa.
Evaluation of profitability has been widely used in various areas of the company.For example, there is a method of return on investment, which is a one of the pricing methods.Its essence lies in the fact that the implementation of a project associated with the production of certain products should ensure profitability at a level which will allow resources to pay the debt.
In addition, there are a number of indicators that characterize not a separate project, and the enterprise as a whole.For example, the rate of profitability is the ratio of profit to cost of production and gives an indication of how effective production activities.Similar figures are not set normal or borderline values, so it is necessary to analyze the dynamics.
