How to Measure Return on Investments

March 28, 2012 — 848 views  

To make money you have to spend money has been the age old saying in business for years, but how much money is the acceptable return on the investment? As a business person, you must weigh the pros and cons of each operation in order to fairly evaluate the profitability of the venture. The return on investment (ROI) measures the exact amount spent against the money it generates.

Start with a simple annual ROI analysis to get the first figures. Add up the entire capital needed for the project or investment, including fees, maintenance costs and staffing. Then determine the profit or loss of the venture. Divide the profit by the investment and convert the figure into a percentage for the ROI. For example, if you spent $1,000 on the total investment and made $1,500 over the course of the year your total profit was $500. Divide the $500 by $1,000 to get a .50 or 50 percent annual ROI.

ROI analysis can help determine your profit daily, weekly, monthly and biannually. More complex calculations will even factor in the finite termination date for the project in order to give investors a more informative outlook on the investment.