What is the return on invested capital?
The return on invested capital is the amount of money that the investor earns for the investment. The return on invested capital or return on investment, as is often called, allows investors to determine how much they earn on the investment. It is a useful tool to measure whether an investment is a good investment or a poor investment. Capital
refers to the amount of money that the individual invests in a given source of investment. For example, an individual could invest $ 100 (USD) in buying shares. In this case, the return on the invested capital would refer to the amount of money that the investor earns in connection with the original investment of $ 100.
The return on invested capital is a useful measure to determine whether the investment is good or not. It can also be used to compare various investments by comparing the return on investment. For example, if one investment has a higher return on investment than other, a company with a higher rate is a better investment provided that all OstAtmospheric variables, such as the risk of investment, are the same.
In order to calculate the return on investment, the money invested must be compared with the money earned. For example, if an investment of $ 100 earns $ 50, this payback rate is a better payback rate than if the $ 500 investment returns $ 50 USD. This allows investors to compare the performance of various investments when the investor puts a different amount of money into each investment.
Calculation of return on investment is simple. The investment costs are deducted from the investment profit and this number is divided by the cost of investment. Suppose, for example, that the investor bought shares worth $ 100 and earned $ 50 for his investment. The return on investment would be equal to $ 150 - $ 100 /100 USD, or 50 % return on invested capital.
This ratio can be used to assess inventory purchases or compare the performance of the relevant products. If prodUKT costs $ 100 for production and profit from the product was $ 150 USD, the same return on the calculation of investment described above could be used to determine which product was a better investment and thus which product was a better manufacturer for the company. Due to the simplicity of the equation, this type of equation is common in business and investment applications.