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residential real estate investment loan
Investment: The use of money through various vehicles, or an individual's time and effort, to make more income or increase capital, or both. The term "investment" infers that the safety of principal is important.
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How to Calculate the Return on an Investment ROI
By Aaron Schwartz
Without calculating the return on an investment (ROI) is not possible to
realize any marketing activity and be sure not to loose capital investments. It
is essential for making one`s marketing activity more effective and uniquely
productive. ROI can be expressed for different time periods: one year, one
month, one week, one day. This makes it a necessary objective analyst of the
marketing activity even for a long period. It also includes possible fees and
expenses of the future financial project. When a person realizes an investment
there is always a potential to increase the capital in several ways. There are a
lot of formulas made to calculate ROI. Some of them are more detailed, some are
less. It is obvious that the formula required depends on the type of investment
and that ROI does not yield to formalization and cannot be entirely universal.
Nevertheless, a general formula can be given:
ROI= Profit/ Total investment
Total investment - total investment, including all the possible fees and
expenses connected with the investment. For example, if you bought $8700 worth
of stock and your fees were $1300, then your total investment is $10,000 ($8700
+ $1300).
Profit - profit or loss associated with the investment. For example if the
$10,000 investment in stocks is worth $50,000 one year later, then the profit is
$40,000 ($50,000-$10,000).
Therefore, ROI calculated by this formula will be:
ROI=40,000/ 10,000=4, or a 400% annual ROI (Just an example).
This formula is a base in calculating ROI and has a lot of minuses. For
instance, is does not consider that it is also necessary to subtract the taxes
from a return, possible stock devaluation and many more. In each case is very
individual, that`s why it is necessary to show a more detailed ROI calculation
on a certain example - shares.
The firs step would be to calculate the earnings or losses due to increase or
decrease in the price of the share:
Current value of the stocks – Price paid for the stocks
Price paid for the stocks
Suppose $3000 was invested in shares one year ago, taking 100 shares at $50.
At the present moment the share price is $60. So the investment is worth 60
times to 100- $6000. So calculating the return will give the next result: (6000
– 3000)/3000= 100%.
Plus shares usually earn dividend payments. So it is imperative to assume
that the company will pay, for instance, $3 per share in dividends. So the
return will be calculated on the following formula:
Dividends + Current value of the stocks – Price paid for the stocks
Price paid for the stocks
300+6000-3000/3000=110%
Therefore accumulating earnings, interests and dividends it is possible
calculate the overall return, which is what is really earned or lost by the
investment-ROI. But even this formula does not include taxes, which can make a
serious influence on the return. RIO is a very flexible calculation that
requires detailed analysis and taking into account a lot of variables. For
example if we deal with a company that rents equipment and has many employees it
is – amortization, constant and variable expenses, general influx of bankrolls
and many more. So ROI calculation is an imperative smart action of every person
who wants to take the most of his investment.
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Aaron is a professional freelance writer at custom essays writing service: custom-essay.net Now he is a technical writer, advertising copywriter, & website copywriter for Custom Essay Writing Service.
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