Profitability analysis (ROI)
Introduction
The performance or return on investment (RSI; or ROI for its acronym in English: return on investment) is a financial ratio that compares the profit or utility obtained and its relationship with the investment made,[1] that is, "it represents a tool to analyze the performance that the company has from a financial point of view."[2].
Calculation
Contenido
Para su cálculo, en el numerador se pueden admitir diferentes definiciones de beneficios, como por ejemplo el beneficio neto después de impuestos, el BAI (antes de impuestos) o el BAII (antes de intereses e impuestos), mientras que en el denominador se debe indicar los medios para obtener dicho beneficio.
Este ratio también se puede expresar como el producto de otros dos ratios de manera que:.
Example
If the assets at the end of the year to be studied are 230,000 and those of the previous year are 170,000, we will have average assets of 200,000. If the profit is 20,000 we will have an ROA = 10%.
Utilization
This ratio is widely used in the analysis of financial entities, since it measures the profitability on average total assets or, what is the same, its capacity to generate value, thus allowing us to appreciate the ability to obtain profit from the total assets of the company and thus relating the profit with respect to the size of its balance sheet.
By comparing the ROA of several years, it is possible to measure whether the growing size of a company is accompanied by the maintenance or increase of profitability or if, on the contrary, this growth is implying a progressive deterioration in its profitability levels.
Return on time invested
Return on time invested (ROTI) complements RSI by focusing on the efficiency and value derived from time spent. While the RSI measures the financial return in relation to the cost of an investment, the ROTI evaluates the benefits obtained in relation to the time invested. In business contexts, a project may show a high RSI but consume excessive time, resulting in a low ROTI. Balancing both RSI and ROTI ensures that resources are used efficiently, optimizing both financial and time investments.
References
- [1] ↑ Pulliam Phillips, Patricia; Phillips, Jack J. (2006). Return on Investment (ROI) Basics (en inglés). American Society for Training and Development. p. 187. ISBN 978-15-6286-406-4.
- [2] ↑ Franklin, Enrique Benjamin (2007). Auditoría administrativa: Gestión estratégica del cambio. Pearson Educación. p. 843. ISBN 978-97-0260-784-7.