How to calculate the return on investment?
The calculation formula of investment profit rate: total investment profit rate (ROI)= earnings before interest and tax (EBIT)/ total investment (Ti) *100%; Among them, the total annual profit is usually the profit before interest and tax when the project reaches the normal production capacity, or the average annual profit before interest and tax during the production period, and the profit before interest and tax = total annual profit+interest expense.
Earnings before interest and tax, in layman's terms, are profits without deducting interest and income tax; Earnings before interest and tax = sales revenue-variable cost-fixed cost = net profit /( 1- income tax rate)+interest expense = net profit+income tax expense+interest expense = total profit+interest expense.
Difference between investment profit rate and investment profit and tax rate
First of all, the overview of the two is different:
1. Overview of investment profit rate: the investment profit rate refers to the ratio of the annual interest and pre-tax profit of the project to the total investment.
2. Overview of investment profit and tax rate: the investment profit and tax rate refers to the total annual profit and tax in a normal production year after the project reaches the designed production capacity or the ratio of the average annual profit and tax to the total investment during the production and operation period of the project.
Second, their roles are different:
1, the role of investment profit rate: the investment profit rate should be compared with the standard investment profit rate or the average investment profit rate of the industry. If it is greater than (or equal to) the standard investment profit rate or the average investment profit rate, the project is considered acceptable, otherwise it is not feasible.
2. Role of investment profit and tax rate: When the investment profit and tax rate is higher than or equal to the industry benchmark investment profit and tax rate, it is proved that the project can be adopted.
Third, the calculation formulas are different:
1. Calculation formula of investment profit rate: total investment profit rate (ROI)= earnings before interest and tax (EBIT)/ total investment (TI)* 100%.
Note: The total profit of middle-aged type is usually the profit before interest and tax when the project reaches the normal production capacity, or the average annual profit before interest and tax during the production period, and the profit before interest and tax = total annual profit+interest expense.
2. Calculation formula of investment profit and tax rate: investment profit and tax rate = total annual profit and tax or average total profit and tax/total investment * 100%.