ROI calculation

case studies
New answer on Feb 25, 2022
4 Answers
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Maxi asked on Jan 28, 2022

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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Moritz
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replied on Jan 28, 2022
Unearth your spike & get the offer |ex-McKinsey | 120+ coachings & interviews @ McKinsey | ESADE MBA | Transition Expert

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! 

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Ian
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replied on Jan 29, 2022
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

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

Great one for testing your math and case leadership!

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Clara
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replied on Jan 28, 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

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Anonymous A replied on Feb 25, 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%. 

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Moritz gave the best answer

Moritz

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Unearth your spike & get the offer |ex-McKinsey | 120+ coachings & interviews @ McKinsey | ESADE MBA | Transition Expert
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