Return On investment Flashcards
What does return mean?
How much money is the business getting back
What does investment mean?
how much capital is being used within the business
Why is ROI important?
It measures a firms profitability and performance
How do u calculate return on investment?
Operating profit/capital invested * 100
What is long term funding?
The amount of capital that has been invested in a business and will stay in a the business for over a year.
Name 2 sources where long term funding may come from?
Equity and Debt
What is equity?
Capital invested by the shareholders of a company.
What is debt?
Money borrowed from financial institutions
Why might a business set a capital structure?
To keep a proportion of long term funding that is debt below a certain percentage.
What is gearing?
A business can be described as highly geared if the % is thought to be high as this increases element of risk
How do you calculate gearing?
Debt/total long term funding * 100
