ROI calculation

Question

Hi Guy,

while trying to solve a case I had a issue with the ROI calculation.

I have no problem with coming up with the revenues or profit.

But from my understanding ROI is:

(Profit-Cost of Investment)/Cost of Investment which here would give me 113M-100M / 100 M = 13%

Here they simply divide Net profit/Cost of Investment

113/100 but this would give 113%.

I think the first formula is the right one especially as CAPEX of 100M is not directly included in an income statement only depreciation maybe.

Any thoughts or clarifying explanation would be appreciated.

Maxi

Answer 1

First of all, the correct answer is indeed 13%.

That's the case for your equation and also the one proposed in the case. They may have been a bit sloppy by writing 113/100=13% but they are coming to the same conclusion as you.

Hope this helps!

Answer 2

Hi there,

Moritz has given a great answer. Also, I know this case (Fireproof) :)

Great one for testing your math and case leadership!

Answer 3

Hey folks! Explore our ROI Calculator! Whether you're a business owner, investor, or simply curious, our intuitive tool allows you to swiftly calculate your return on investment accurately. Bid farewell to guesswork and embrace informed decision-making! Visit Ledger Labs

Answer 4

Hello!

+1 Moritz, great link and info!

Cheers,

Clara

Answer 5

The formula for ROI is net profit/investment. Net profit already accounts for capex in depreciation. Therefore, the answer here should be 113/100 = 113%.