Calculating your return on assets is one of the most important things a business needs to do. It is necessary in order to determine how effective your investments are which will help you maximize your profit. If you don’t calculate your return on investment, then you don’t know if the money you are investing is actually worth it, and while you may get lucky for a while, you will almost certainly end up losing money eventually. Follow these four steps and you can figure out your ROI quickly and easily.
1. First off, you need to know the dollar value you earned from your investments. This will have to be determined individually based on your costs and, if you want to use economic accounting, opportunity cost. It is important to be honest when determining this number. It may look better to choose a bigger number, but it will cost you money in the long run. For example, let’s say the return was $1 million.
2. Once you have that, you need your initial investment. This should be easy to determine if you’ve documented your expenditures properly. When making your investment ROAS Calculator, make sure to include all related expenses for greater accuracy. For our example, the investment was $200,000.
3. The next step is properly setting up the equation. The equation is: ROI = [(return on investment – investment)/investment] * 100. This will give you the percentage return on assets. For the example, it’s: ROI = [(1,000,000 – 200,000)/200,000]*100.
4. After you have the equation properly set up, your next step is solving it. You should be able to do this easily, but I’ll go through it for thoroughness. ROI = [(1,000,000-200,000)/ 200,000]*100, which becomes ROI = [800,000/200,000]*100, which becomes ROI = 4*100, or 400%. For this example, the return on investment was 400%.
Having the ROI, you can determine the effectiveness of your investment. When you know how much money you are making off of each of your investments, you can determine which ones are the best, and then focus on those while discontinuing the ones that result in less return on assets.