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Maxi

am 28. Jan. 2022

Global

ROI calculation

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

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Beste Antwort

Moritz

Coach

am 28. Jan. 2022

ex-McKinsey EM & Interviewer | 7/8 offer rate for 4+ sessions | High impact sessions + FREE materials & exercises

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!

Ian

Coach

am 29. Jan. 2022

Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

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

Great one for testing your math and case leadership!

Gary

am 7. Mai 2024

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Clara

Coach

am 28. Jan. 2022

McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

+1 Moritz, great link and info!

Cheers,

Clara

Anonym A

am 25. Feb. 2022

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%.