According to the different purposes of analysis, the application indicators of return on investment can be divided into:
1, total return on investment (ROI)
ROI calculation formula: ROI=EBIT/TI* 100%.
2. Net profit rate of capital.
ROE calculation formula: ROE=NP/EC* 100%
Extended data
The return on investment reflects the profitability of investment. When the ratio is obviously lower than the company's return on net assets, it shows that its foreign investment is a failure, and the foreign investment structure and investment projects should be improved; When the ratio is much higher than the average enterprise's return on net assets, it is suspected of manipulating profits, and the rationality of various benefits should be further analyzed.
The advantages of investment rate of return are: the economic significance of the index is clear, intuitive and simple to calculate, which reflects the advantages and disadvantages of investment effect to a certain extent and can be applied to various investment scales. The disadvantages are: the time value of funds is not considered, and the importance of the time value of funds is ignored; Index calculation is too subjective and arbitrary.
In other words, it is difficult to choose the normal production year, and how to determine it has certain uncertainties and human factors; It can't correctly reflect the influence of construction period, different investment methods and recovery amount on the project, and the calculation caliber of numerator and denominator is not comparable, so it can't directly use the net cash flow information.
References:
Baidu Encyclopedia-Return on Investment