Hello katem70,
You didn't say which ROI equation you wanted to use. Here are the
most common equations used. Excel has builtin functions for NPV and P
calculations.
ROI EQUATIONS
1. STANDARD EQUATIO
ROI = Net Benefits/Cost * 100%
Net Benefits = Benefits – Costs
Costs = Initial and Recurring/Ongoing Project Costs
Time Period = The standard ROI equation is usually calculated for th
first year of the investment.
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2. RETURN ON INVESTMENT CAPTIA
ROI = NOPAT/Invested Capital * 100%
NOPAT = Net Operating Profit after Taxes
Invested Capital = Same as costs above (initial and recurring projec
costs)
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3. RETURN ON INVESTMENT USING NET PRESENT CAPITA
ROI = NPV (Benefits)/PV (Costs) * 100%
NPV of Net Benefits = Present Value of Benefits – Present Value o
Costs
PV (Costs) = Present Value of Costs
This equation accounts for the time value of money or the “interest
derived from investing in an investment with similar risk. The Presen
Value is discounted at the cost of capital of the company or the “rate
the company could borrow money in the marketplace given its risk level.
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4. FINANCIAL DEFINITIO
ROI = Profits/Firm Assests * 100%
Profits = The ROI financial definition is used to estimate the retur
of a company’s profits or net income. Net income in turn is defined a
the gross income less deductions for depreciation, interest payments
and taxes.
Firm Assets = Company resources including cash, accounts receivable
inventory and properties
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5. BEST VIE
ROI = Total Net Benefits/Costs * 100%
A typical use of this equation would be for a software vendor whose d
not include recurring or operating costs.
Net Benefits = Benefits – Initial Costs
Costs = Initial Costs
If you are familiar with Excels worksheet functions it won't b
difficult to compute your ROI. You just need to decide which of th
equations best represents your needs,
Sincerely,
Leith Ros
