ROI OBJ Flashcards
GIVE ME EXAMPLE
INVEST40% OF AST YEATS REV INTO NRE CAPITAL EQUIPMRNY
WHAT IS ROI
Expendiure by org
on resources thatll enable a bs tp achieve its obj
what are the 5 factors influencing ROI
managment attitude to risk
lvl of retianed profit
ir/availbailty of ex finance
expected ROR on I
MKT CONDITIONS
consider amangment attitutde to risk
risk averse
risk encouragin
googel is good example of risk encouragin
consdier level of retained profit
higher the more ability to invest risk free as dont have to borrow money
consider ir/availabilty of external finance
higher IR can make bs more sensitive to invest and take out money - esp if already highly geared
consider expected Rate of return on investment
how much will i get
how long will it take copmared to how much ive invested
consdier mkt conditions
if mkt expected to grow - increase ninvestment
or customers iome predicted t increase i investment
whats good practice to do before investing
investment appraisal
define investment appraissal
process managmgent use ot comapre £ of investtetn to expected revs it will accrue
formula
return on investment (rev- cost of investmetn )
/
total cost of investmetn
x100
limitaitons of ROI
Doesnt take into account time
may not iclude cots of other factors such as staff traiing with this new investmetnt into e.g new technology
