Return On Investment
ROI Details analysis
Definition of ROI.
The full form of ROI is,
“Return On Investment” . Distributor invest money for the whole year and the
amount he earns at the end of the year is called return on investment. It is
the remuneration for the capital invested through out the year. It is the
difference between cash out and cash in . ROI is expressed in percentage , in a year to compare different types of
investment. It is the process to measure efficiency of investment. It is
performance of investment.
Total income----total expense x100
|
Total
investment
|
Total income :- Total income ia the year,
total income like total margin , incentive
for distributor, any cash discount etc
.
Total expense :- Expense incurred within a year like rent for warehouse, office rent, electricity
bill, staff salary , delivery expense and office expense etc.
Multiplication by 100 :- As we express ROI on
percentage basis.
For example a distributor’s monthly sale is 3000000 and margin is 3% and investment is 2100000 ,( FMCG company
generally asks for 21 days investment) lets calculate ROI .
Monthly turnover
|
3000000
|
|
Income
|
Expense
|
|
Distributor margin @3%
|
90000
|
|
Godown rent
|
15000
|
|
Staff Salary
|
20000
|
|
Others
|
6000
|
|
Total monthly
|
90000
|
41000
|
Total yearly (
Monthly x12)
|
1080000
|
492000
|
We assume investment is 2100000
|
||
1080000-492000
|
X
|
100
|
2100000
|
ROI is 28 %
In this case ROI is 28%. First we need to calculate monthly income
and expenses . Then we need to multiply
monthly income and monthly expense by 12 to get total yearly income &
expense. After deducting total yearly expense from total yearly income we will
get net yearly income. Net yearly income is divided by total
investment and multiplied by 100, we
will get ROI.
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