Return on Investment
Table of Contents 1. Introduction 2 2. Literature review 3 2.1. ROI Case Study: IBM- November 2012 (Nucleus Research) 3 3. Methodology 4 4. Analysis 5 4.1. Adani Power 5 4.2. Torrent Power 6 5. Conclusion 7
1. Introduction
An investment is an exposure of cash that has the objective of producing cash inflows in the future. The worthiness of an investment is measured by how much cash the investment is expected to generate.
The analysis of Return on Investment (ROI) is a financial forecasting tool that assists the business manager in evaluating whether a proposed investment opportunity is worthwhile within the context of the company’s business objectives and financial constraints.
The investments to be analysed have some of the following characteristics: * A major amount of money is involved. * The financial commitment is for more than one year. * Cash flow benefits are expected to be achieved over many years. * The strategic direction of the company may be affected. * The company’s prosperity may be significantly affected if the investment is made or not made.
Every business should aim to earn a realistic rate of return on the total capital invested in that business.
The capital invested in a business is the total worth of the business, which includes the equity or owner’s capital plus the value of all the assets employed in the business less the liabilities of the business.
A comparison of this ratio with similar firms, with the industry average and over time would provide sufficient insights into how efficiently the long term funds of owners and lenders are being used. The higher the ratio, the more efficient is the use of capital employed.
2. Literature review
The purpose of the Return on Investment (ROI) metric is to measure, per period, rates of return on money invested in an organization in order to decide whether or not to undertake an investment.
ROI provides a snapshot of profitability, adjusted for the
1. Introduction
An investment is an exposure of cash that has the objective of producing cash inflows in the future. The worthiness of an investment is measured by how much cash the investment is expected to generate.
The analysis of Return on Investment (ROI) is a financial forecasting tool that assists the business manager in evaluating whether a proposed investment opportunity is worthwhile within the context of the company’s business objectives and financial constraints.
The investments to be analysed have some of the following characteristics: * A major amount of money is involved. * The financial commitment is for more than one year. * Cash flow benefits are expected to be achieved over many years. * The strategic direction of the company may be affected. * The company’s prosperity may be significantly affected if the investment is made or not made.
Every business should aim to earn a realistic rate of return on the total capital invested in that business.
The capital invested in a business is the total worth of the business, which includes the equity or owner’s capital plus the value of all the assets employed in the business less the liabilities of the business.
A comparison of this ratio with similar firms, with the industry average and over time would provide sufficient insights into how efficiently the long term funds of owners and lenders are being used. The higher the ratio, the more efficient is the use of capital employed.
2. Literature review
The purpose of the Return on Investment (ROI) metric is to measure, per period, rates of return on money invested in an organization in order to decide whether or not to undertake an investment.
ROI provides a snapshot of profitability, adjusted for the