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ROI - do i need to annualize

ROI calculation
Recent activity on Mar 05, 2020
4 Answers
1.4 k Views
Anonymous A asked on Mar 03, 2020

I'm wondering for ROI figure in a 5 year period investment, is it more common to calculate an "annualized figure", or I could just state a 5 year total ROI?

Also, for annualized ROI, could I just divide the total ROI figure with years? (For example, 5 year ROI = 5%, so annualized ROI = 5%/5= 1%)?

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Sidi
Expert
replied on Mar 03, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

Short answer - you have to ask! Please clarify what ROI means for the client - annualized or total return. Never just assume something!

Cheers, Sidi

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Robert
Expert
Content Creator
replied on Mar 05, 2020
McKinsey offers w/o final round interviews - 100% risk-free - 10+ years MBB coaching experience - Multiple book author

Hi Anonymous!

I agree to the existing answers so far. Don't assume something especially without making it absolutely explicit in your communication to the interviewer (this is true for your specific question, but also in general for case interviews - whenever in doubt, be more explicit than you would do regularly).

From a tactical perspective during the case interview, especially giving the limited time available, I would firstly go for the easy-to-calculate/easily available numbers, and clarify explicitly with the interviewer if he prefers to have the number presented in a different way (e.g. on an annual basis) as well.

Hope that helps - if so, please give it a thumbs-up with the upvote button!

Robert

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Clara
Expert
Content Creator
replied on Mar 04, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

In cases like this, don´t jump into the pool without knowing whether there is water! Simply ask this to the interviewer as you have asked in the post -i.e., outlining the two different options, which shows knowledge and proactivity-.

Hope it helps!

Cheers,

Clara

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Anonymous B replied on Mar 03, 2020

If your goal is to calculate the ROI for 5 years, then yes you could say "5 year ROI is 5 % which equals to 1 % p.a".

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