How To Calculat ROI And Its Benefits For The Company's Economy

Illustration of calculating ROI (Alfidana/Firmbee.com)

YOGYAKARTA - Return on investment (ROI) is a term that often appears in the economic sector. ROI is referred to as profit or net income from investment. Every businessman must understand how to calculate ROI.

ROI is calculated based on the distribution of revenue generated by a number of invested capital. ROI will be a benchmark for business people to find out their business profits.

In the investment world, ROI is the rate of return of investment funds given to investors or customers. ROI is used to identify potential financial ratios obtained during investment.

ROI can be calculated by formula, which is to reduce total sales by investment and then divide it by 100 percent investment.

Formula: (Total Selling Investment Value)/ (Investment x 100%)

The ROI calculation shows accurate results to see the estimated business development. So business people should not only focus on calculating margins or product sales profits.

From the results of the ROI calculation, business people can find out the amount of funds that must be invested to achieve the sales target, the amount of profits they get, and other benefits that can support business development.

There are several factors that influence ROI. Before calculating ROI, business people must first know these factors.

Calculation of the business ratio relies on the rate of turnover of the assets used by the company for all operational activities. The turnover rate of the activate can be referred to as an activating speed in a period to generate investment returns.

For example, in a company there is a tool to produce an item worth IDR 20 million. What is meant by the activation rate is how fast the tool can return the investment value (purchase) by making the product to be sold.

Profit margin is referred to as the company's ability to generate profits compared to the company's achievements. The margin profile is revenue against sales obtained from the difference between net sales minus the Basic Sales Price (HPP). Then the results are divided by net sales.

The profit margin ratio is an indicator of the company's ability to earn a profit at a certain sales rate. In addition, this ratio is also used to assess the company's management's ability to control various expenses.

These two factors are supporters of a useful level of return on investment for business planning purposes in the future. The results of the ROI value count can be used as a basis for business decision making, such as acquisitions, consolidation, mergers, expansions, and so on.

There are several benefits from calculating ROI for the company. Here are some of the advantages of companies that make ROI calculations.

There are four steps that can be taken by business people to apply ROI results in the company.

1. Confirm the company's financial formula with several figures required for calculation, such as the cost of basic sales (HPP) or the cost of producing these service products.

2. Determining ROI's threshold or target for the entire budget. Through this step, the company can control the investment budget. If the investment does not go well, the company can divert investment.

3. Companies need to set a marketing budget. This step is taken after calculating and setting the annual profit target so that the amount can be right according to its objectives.

4. Review and increase the results that have been obtained.

That's how to calculate ROI for companies or businesses. The ROI calculation is needed by the company to find out economic activities within the company. By conducting ROI analysis, it means that the company has carried out accounting practices well.

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