what is the importance of return on investment ratio?
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Answer Posted / bhushan pawar
ROI one of the most important ratio...Helps you identify
profit made against investment in total assets includes
working capital,capital investment etc.....
ROI=Margin X Velocity
where
Margin=Profit/sales
Velocity=Sales/Total Assets
Case:
1)Some businesses are very competitve...where margins are
very low...the only way is to improve ROI is to improve ur
velocities that is by increasing ur sale.....
for ex: walmart..offers product at very cheap prices but
bcoz of velocity i.e.sales still leader in the market....
2)Margins can be improved by improving the efficiency of
the business units....working on the operational aspect
will help in improving performance....for example...Value
Engg.,Value Analysis,Six Sigma,Kaizen etc...
3)If the organisation is innovator then it is easier for u
to keep higher margin as there is really very low
competition for organisation in the market....
Most of the Tech and pharma based organisation survive bcoz
of there innovativeness...
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