As a businessman, we must understand well what return on investment (ROI) is. In simple terms, return on investment means the overall rate of return on investment in a business agreement that is established. It is not only enough to understand the meaning, after understanding the meaning of return on investment, we must also know how to calculate it. The reason why it is mandatory to understand and know how to calculate it is because ROI is a benchmark to be able to find out the profits of the business we run. That way, we can find out the rate of return on the investment we make. We can also evaluate the business from the amount of return we get. 

Business and financial experts even consider that ROI is money or assets that we gain or lose in the investment process of a business. In this context, the investment made refers to the purchase of assets, capital, and the necessary budget as an investment cost. For those who need a more detailed and in-depth explanation of ROI, let's just look at the explanation below. Before that, don't forget to register as an IB or invite your friends to the Affiliate program so that you will get an additional bonus from GIC.

What is Return On Investment (ROI)?

The definition of return on investment is a ratio that shows the result of the number of assets used in the company or a measure of management efficiency. The ratio shows the results of all controlled assets by ignoring funding sources. Usually, ratios are measured as percentages. As mentioned a little earlier, return on investment according to experts can be considered as money or assets. The definition of return on investment according to these experts is based on the context of investment which refers to the purchase of assets, capital and investment budgets.

In addition, return on investment is a comparison used to calculate how much an investment is worth. For example, when an investor wants to know the potential of an investment, he can use ROI to find out the comparison of funds spent on investment and also the potential profits obtained. Calculating a potential ROI should involve dividing a company's revenue by the amount of initial investment spent. Return on investment is an 'opportunity cost' given by investors, therefore experts explain what return on investment is as an asset or money which is also an opportunity cost. To find out more about the usefulness or benefits of ROI analysis in a business, we can see more in the explanation below. But before knowing its use, also download the application of GIC Mobile on your Smartphone! 

Uses or Benefits of Return On Investment (ROI) Analysis

In the explanation above, it has been mentioned a little related to the usefulness and benefits of return on investment. However, basically, if every company has implemented neat accounting practices, management will also automatically use ROI to measure the efficiency of using the capital that works for sales. This can help to show the weaknesses and strengths of the company that is being run.

By knowing the weaknesses and strengths of the company, it can be used as an advantage of other companies. Therefore, the most basic use of ROI itself is to be able to know the advantages and advantages of the company itself. Not only that, the use of ROI is to measure the efficiency of actions taken by divisions, departments or parts of the company. The trick is to allocate costs and capital, and divide them efficiently into divisions, departments and parts of the company. This can be done using ROI analysis.

Company profitability is certainly the main thing to think about, and to be able to measure ROI is the right way to do it. ROI will also make it very easy for us as entrepreneurs, to control the company's planning and needs. ROI can also be used to make important decisions for the company, especially when the company is about to take an expansion action. To make it easier to interpret the usefulness of ROI itself, the following will be briefly summarized what are the uses of ROI. This is expected to make it easier for us, especially those who run businesses, to be able to make the best use of ROI:
  1. ROI has a holistic nature, this will apply if the company has implemented ROI to measure the efficiency of the company's use of operational assets.
  2. If a company provides industry data, then it can allocate the ROI rate with other similar companies as a comparison to improve the company itself.
  3. ROI analysis can be used to measure the efficiency level of a company's activities in allocating the company's own costs and capital.
After knowing what are the benefits and uses of ROI, we as entrepreneurs must also know what factors affect ROI itself. So that we can utilize and use ROI efficiently and optimally for the benefit of the company. Check out the review related to the factors referred to in the explanation below. We have learned the benefits of ROI analysis, after which we also find out to what extent your trading talent is through the Preliminary Test from GIC! 

Factors Affecting ROI

In return on investment marketing, of course, there are several important factors that affect it. Because, return on investment ratio is a form of profitability ratio analysis technique that can greatly affect a company. Every entrepreneur and his company can find out how efficiently his company can utilize assets for operational activities. Also, it can also help to provide information on the size of the company's profitability that can help the development of the company itself. Therefore, knowing how to increase return on investment is also very important. To be able to know how to increase it, we must also know the factors that affect the return on investment ratio, namely:
  • The first is the turnover of operational assets or the level of asset turnover used for the company's own operational activities, namely the speed of asset turnover in a certain period.
  • The second is profit margin, which is the amount of an operational profit displayed in the form of a percentage and also the amount of net sales. Profit margin can also measure the level of profit obtained by the company and is linked to the sales made by the company.
  • Both of the above are types of return on investment or factors that affect ROI itself that can help us to be able to increase ROI. However, how exactly do you calculate ROI and what does the formula and examples look like? Just see the full explanation below.

Formula and How to Calculate Return On Investment (ROI)

In ROI there are several terms that may be confusing. Before discussing the formula and how to calculate ROI, let's refresh our memory related to ROI-related terms so that we can understand the explanation in this article even better. The Return On Investment Approach is a type of ROI approach used. Related to how to calculate and other methods. Average Return On Investment is the average amount of return on investment obtained by our company. This is of course by using an approach that is in accordance with the management of the company that we do.
  • Return On Investment Pricing is the price of the company's return on investment. This price is related to the cost and capital needed resulting from the ROI analysis carried out.
  • Return On Investment Calculation is the calculation of the ROI carried out by the company.
  • Return On Investment Analysis is an ROI analysis system used by companies.
We should know that even if we can remember every term related to ROI, it will make it easier for us to run a company, especially when implementing ROI itself. Then next, enter the important part of ROI itself, namely the return on investment formula or return on investment formula. There are several return on investment formulas or return on investment formulas that are commonly used. Here's the formula:
  • ROI =  100
The formula above is the ROI formula according to experts.  But in practice, the way to calculate ROI uses an even more efficient formula, namely:
  • ROI = (Income generated / Capital invested) x 100%
In the end, the two formulas above will produce different numbers. The first formula will produce an exact number, while the second will produce a number in the form of a percentage. In general, many use the second formula, because the ROI itself is easier to display and calculate using percentages, as explained at the beginning of the explanation earlier. To make it easier to understand the formula and how to calculate it, it is better to use the example of return on investment. For example, an entrepreneur named Haji Ramli, invests capital of IDR 100,000,000 and earns a profit of IDR 125,000,000, then the average return on investment is as follows (calculated using the formula):
  • ROI = (Income generated/Capital invested) x 100%
  • ROI = ((125.000.000 – 100.000.000)/ 100.000.000) x 100%
  • ROI = (25.000.000 / 100.000.000) x 100%
  • ROI = 25%
So that the average return on investment that will be obtained by Haji Ramli is 25% of the initial capital invested. This is of course very tempting, because the lift obtained is very high, namely 25% of the overall profit is the average return on investment that will be obtained by Haji Ramli.

Using the formula above is the easiest way to calculate the return on investment calculator. We just need to calculate the amount we will use based on the example of return on investment question above. Maybe we are still confused even though we already know the formula and how to calculate ROI. To make it even easier, we may need tips and steps to apply it. There are about four steps we can start to implement ROI, namely:
  1. First of all, we must first confirm the company's financial formula with some numbers needed for calculation, such as the Cost of Goods Sold or the cost of producing the products and services we sell, as well as marketing investment figures and also revenue. Each company has a different formula and calculation method to get each lift above, therefore we must make sure first.
  2. Next, we must determine the ROI target for the entire budget. Because it can make us control the investment budget. When the investment we are participating in does not go well, and will get a loss in the return on investment, we can immediately divert the investment.
  3. We also need to determine a budget for marketing or marketing. If you have set ROI goals and also annual company profits, don't forget to also determine a marketing budget. This will really help us in spending a budget with the right goals and amounts.
  4. Finally, do an ROI calculation and then track and continue to improve the results we have gotten.
The above steps will be very helpful to us, guiding us in the application of ROI. If the above step is an application step or how to use ROI directly, then how to use the ROI calculation results themselves? Actually, the use of ROI itself is very easy. Once we get the results of the ROI calculation, we will receive a positive value or a negative value. We can use the results of the calculation of ROI as an indicator to assess the effectiveness of the investments we run.
Positive value and negative value ROI have their own meanings. A positive ROI value means that the investment we make gets a good level of return, which is in line with expectations. Conversely, a negative value means that the investment we make is generating a loss, not a profit. Therefore, in each ROI formula will be able to produce an accurate calculation, with the note that we must take into account the value of the return and all costs involved.
 
We also need to remember that there are drawbacks to the ROI analysis itself. As an entrepreneur, we must also be able to predict everything. It also includes estimating the weaknesses of ROI that can make it difficult for us. For that, here's a list of the drawbacks of ROI analysis itself. After knowing the formula and how to calculate this ROI, make sure to also conduct an internal survey of GIC so that our team can find out the satisfaction of using our platform.

Disadvantages of ROI Analysis

After knowing how to calculate the return on investment described above, know how to apply it and also how to use the results of the ROI calculation. One important thing that must also be known is related to the disadvantages of return on investment, although there are some questions about other return on investment. However, just in case something goes wrong, figuring out the weaknesses of an ROI analysis doesn't hurt and doesn't completely make the ROI inaccurate and unhelpful.

Like a system and a formula, mistakes and weaknesses are natural. The first disadvantage of ROI is the difficulty in comparing the ROI of our company with similar competitors. This is due to the different accounting practices of companies. Differences in accounting practices and methods can also create a misrepresentation in the valuation of a company's financial assets. Another downside of ROI lies in the fluctuation in the value of the company's money and purchasing power.
This will be very fatal in producing comparisons between similar companies. Because fluctuations in the value of money and purchasing power of a company will affect the value of operating assets and also profit margins, an important part of the factor to increase ROI itself. But again, even if there are weaknesses as explained above, it does not mean that the ROI is inaccurate and unuseful, and then must be abandoned.
 
As long as we know the accounting methods used and also we know the buy value and sell value used, the results of the ROI calculation are very accurate to use. After all, ROI is a measurement tool to control the financial health of a company. Of course, there are various measuring tools for the company's financial calculations. There are companies that match ROI and there are companies that match other measurement tools.

In essence, the company's finances must still be calculated and measured as an effort to advance the company we run. Because, the spirit of a company is healthy and stable financial control. Hopefully the explanation related to ROI that has been explained above can be useful for us in running the company that is being pursued. Stay enthusiastic to achieve the main goals of the company you run, and also consult your Forex, commodities and stocks trading through Trader Assessment in order to trade well.

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