Financial Performance Metrics Flashcards
Return on Investment
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
Return on Equity
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
Return on Assets
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company’s annual earnings by its total assets, ROA is displayed as a percentage.
Present Value (PV)
A future amount of money that has been discounted to reflect its current value, as if it existed today. The present value is always less than or equal to the future value because money has interest-earning potential, a characteristic referred to as the time value of money.
Net Present Value (NPV)
The NPV of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values of the individual cash flows of the same entity. NPV is used in capital budgeting to analyze the profitability of an investment or project.
Breakeven Point
The point at which total expenses and total revenue are equal: there is no net loss or gain, and one has “broken even.” Often used to compare investment opportunities. At Apptio, as part of our Business Value Assessment, we calculate the “breakeven month” for our prospects – the month during which the total costs of implementation and subscription are balanced by the total value generated by our applications.
Total Cost of Ownership (TCO)
Financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or system. For example: in IT, the TCO of an application includes development, licensing, hosting, on-going training and maintenance costs.
