A firm’s ROI (Return on Invested Capital) is a term that describes how a company will produce a superior return on invested capital. It is one of the most important measurements for firms to track and analyze in order to increase their profitability.
This article will discuss what ROI means, why it matters, and how you can calculate your own ROI as well as other firms’ ROIs. It is important to know that ROI can be defined in two different ways.
HOW TO GET THE RETURNS
One definition of a firm’s ROI compares the company’s total gain from an investment with its initial cost. This measurement allows you to see if the business has made a profit or incurred a loss, and how much it gained/lost compared to what was initially invested into this particular project.
Another way to think about ROI is by considering all of the money that flows back through an organization as percentage of their original outlay (or capital). In other words, it measures how effectively they are using assets such as time, talent, and equipment relative to expenditures on these items. By looking at both definitions for this term you will better understand why firms