Other ROI Metrics
Other financial metrics are also treated as ROI figures at times.
In financial statement analysis—where analysts assess the financial health and business performance of companies—“Return on Invested Capital,” “Return on Capital Employed,” “Return on Total Assets,” “Return on Equity,” and “Return on Net Worth,” are sometimes called “return on investment.”
In still other cases, where the focus is cash flow analysis, the term ROI has been used to refer simply to the cumulative cash flow results of an investment over time, such as shown in the figure above. Some people also refer to other financial metrics as "ROI," such as "Average Rate of Return" or even Internal Rate of Return (IRR).
In brief, several different return on investment metrics are in common use and the term itself does not have a single, universally understood definition. Therefore, when reviewing ROI figures, or when asked to produce one, it is a good idea to be sure that everyone involved:
- Defines return on investment the same way
- Understands the limits of the concept when used to support business decisions
For more practical guidance on building a business case and other financial metrics, see Business Case Essentials or the Business Case Guide
| New Books on ROI and the Business Case!
Learn from the trusted authority, the world's most frequently cited business case book. Clear, concise, and practical. Everything you need to know for building your business case, complete with ROI and other financial metrics. Click here to read more and order online...
Getting Your Budget Approved Learn how to calculate the ROI of so-called "soft" benefits and find out how to cut your Business Case preparation time in half!
|
Business Case Essentials, 3rd edition
© Copyright Solution Matrix Ltd. 2004 - 2010
