Formulas for derivation :

Operating income is 14% of sales revenue.

Operating assets : fixed cost + annual total working cost

Salvage value 100.000

ROI = operating income / avg operating assets

Sales revenue we get from our sales of year

Depreciation of assets = (operating income – salvage value ) / no of years

Asset value after depreciation = depreciation value + operating assets

Average operating assets = asset value after depreciation + operating assets

What Does Return On Investment - ROI Mean?

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of
different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment;
the result is expressed as a percentage or a ratio. 

The return on investment formula:

ROI is a measure of cash generated by or lost due to the investment. It measures the cash flow or income stream
from the investment to the investor, relative to the amount invested.Cash flow to the investor can be in the form of
profit, interest, dividends, or capital gain/loss. Capital gain/loss occurs when the market value or resale value of the
investment increases or decreases. Cash flow here does not include the return of invested capital.

 ROI values typically used for personal financial decisions include Annual Rate of Return and Annualized

Rate of Return. For nominal risk investments such as savings accounts or Certificates of Deposit, the personal

investor considers the effects of reinvesting/compounding on increasing savings balances over time. For

investments in which capital is at risk, such as stock shares, mutual fund shares and home purchases, the

personal investor considers the effects of price volatility and capital gain/loss on returns.

 Profitability ratios typically used by financial analysts to compare a company’s profitability over time or

compare profitability between companies include Gross Profit Margin, Operating Profit Margin, ROI

ratio, Dividend yield, Net profit margin, Return on equity, and Return on assets.[2]

 During capital budgeting, companies compare the rates of return of different projects to select which projects

to pursue in order to generate maximum return or wealth for the company's stockholders. Companies do so by
 considering the average rate of return, payback period, net present value, profitability index, and internal rate of

return for various projects.[3]

 A return may be adjusted for taxes to give the after-tax rate of return. This is done in geographical areas or

historical times in which taxes consumed or consume a significant portion of profits or income. The after-tax rate

of return is calculated by multiplying the rate of return by the tax rate, then subtracting that percentage from the

rate of return.

Except for rare periods of significant deflation where the opposite may be true, a dollar in cash is worth less today

than it was yesterday, and worth more today than it will be worth tomorrow. The main factors that are used by

investors to determine the rate of return at which they are willing to invest money include:

 estimates of future inflation rates

 estimates regarding the risk of the investment (e.g. how likely it is that investors will receive regular

interest/dividend payments and the return of their full capital)

 whether or not the investors want the money available (“liquid”) for other uses.

Summary: overall rate of return

 Rate of Return and Return on Investment indicate cash flow from an investment to the investor over a

specified period of time, usually a year.

 ROI is a measure of investment profitability, not a measure of investment size. While compound interest and

dividend reinvestment can increase the size of the investment (thus potentially yielding a higher dollar return

to the investor), Return on Investment is a percentage return based on capital invested.

 In general, the higher the investment risk, the greater the potential investment return, and the greater the

potential investment loss.