Taejeah

The performance of an investment centre is usually monitored by using either or both of ROI and RI.

ROI shows you how much profit has been made in relation to the amount of capital invested. It is calculated as follows: (profit/capital employed) x 100%

ROI is generally reguarded as the key performance measure.

The main reason for this is that it ties in directly with the accounting process and is identifiable from the income statement and balance sheet.

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urd87

Thanks for sharing i guess..

Anyone have any issues in understanding the RoI, can ask here..

magic1114

I want to know the difference between Irr and this

ameerulislam

Originally Posted by magic1114

I want to know the difference between Irr and this

Firstly let me give you descriptions of the abbreviations
ROI= Return On Capital employed
IRR= Internal Rate of ReturnFirstly let me give you descriptions of the abbreviations
ROI= Return On Capital employed
IRR= Internal Rate of Return

Now let me describe it a bit informally just for easy understanding.....

ROI= Return On Capital employed

It's the amount of return (i.e. profit/gain in access of investment) you got from your investment.

Example:Let's say If you have invested $1000 in share market and earned $500 in return then your ROI should be $500/$1000X100( so you can show in percentage)= 50%
Simple this one.

IRR= Internal Rate of Return

First of all IRR is not in F5 syllabus. So u don't need to worry about it if ur concerned with F5.


Any way let me explain IRR with an example. let say a friend of yours borrowed $5000 from you and told you that he will pay you 10% more then the $5000 but he will pay it to you in equal yearly installments ($1100). with in 5 years. Let's say next 5 years discount rate (inflation and other uncertainties) is going to be 3% .

Now should you accept this offer or not the IRR will help you to decide.



So the required cash-flow should be $5500/4.58= $1200.87 apx. $1201

Now as your friend wants u to only pay $1100 you should not accept his offer if you want to follow IRR.

I hope it helps some what.

Hazique

There is a slight difference between Return On Investment (ROI) and Return On Capital Employed (ROCE).

Return On Investment (ROI) is a profitability measure that evaluates the performance of a business. ROI can be calculated in various ways. The most common method is Net Income as a percentage of Net Book Value (total assets minus intangible assets and liabilities).

Return On Capital Employed (ROCE) is a measure of how effectively the company is using its capital. The formula to measures the return on all the assets the company is using: Profit before interest and tax (PBIT) / (total assets - current liabilities)

jiesi27

Thanks for sharing