Use of Return On Investment (ROI) Analysis

Return On Investments is a ratio that shows the results of the number of assets used in the company. This ratio shows the results of all assets driven by ignoring funding sources, this ratio is usually measured by percentage. For those of you who want to invest and want to get away from investment fraud, you can visit investment fraud lawyers.

There are several factors that can affect ROI, including:

– Turnover of operating assets or asset turnover rates used for operational activities, namely the speed of operating assets in a given period.

– The profit margin is the amount of operating profit expressed in terms of percentage and the number of net sales. Margin profit can measure the level of profit of the company and be associated with sales.

ROI as a form of profitability ratio analysis technique is very important in a company because by knowing ROI, entrepreneurs can find out how efficient the company is to utilize assets for operational activities and can provide information on the size of the company’s profitability.

Some of the uses of ROI analysis include:

– If the company has carried out good accounting practices, then management using ROI analysis techniques can measure the efficiency of the use of working capital, production efficiency, and efficiency of the sales department.

– If the company has industrial data so that industry ratios can be obtained, then with ROI analysis can be compared to the efficiency of the use of capital in the company with other similar companies, so it can be known whether the company is below, equal, or above average. Thus it will be known where the weaknesses and strengths of the company compared to other similar companies.

– An ROI analysis can also be used to measure the efficiency of actions carried out by each division or section, namely by allocating all costs and capital into the relevant part.

– An ROI analysis can also be used to measure the profit of each product from the company.

– ROI besides being useful for control purposes is also useful for planning purposes. For example, ROI can be used as a basis for decision making if the company is going to expand.

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