If your business gives you a ROI of 85% and you took a loan to start this business (with an interest rate of 25%), does this mean your high ROI can cover your interest rate easily? So you'd still have 85-25= 60% left in returns after covering the loan interest?
(edited)
Depends on your leverage ratio.
Assuming that by RoI you mean RoE.
If you have $20 of equity, and $80 of debt. Your RoI is $17 (85% of $20) and your interest payment is $20 (25% of $80). So you are actually in a loss making situation.
If by RoI you mean RoA - then you are better off. Although realistically 85% RoA and 25% interest are quite extreme numbers.
Hi there,
In theory yes, however:
So there is always the risk that the ROI won’t fully materialize.
Best,
Francesco
Hi there,
Yes, you've essentially exceeded your cost of capital here by a very healthy margin.
