This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
1. Investor’s View
Return on Investment ratio: Net Income as a percentage of the Shareholders’ Equity.
ROI measures how effectively the Shareholders’ investment has been put to work to create profit.
This is the same as Return On Equity (ROE).
2. Manager’s View
The benefit obtained from any internal improvement or expansion, expressed as a percentage of the cost. This ROI forecast allows the Finance Department to choose between competing proposals for improving the business, by seeing which ones provide the biggest bang for the buck.
Return on Investment (ROI) ratio =(Value of Improvement−Investment) as a percentage of Investment
Example: The Round Number CompanyValue of Improvement = 200; Cost to implement impropvement = 50 Return on Investment = (200-50)/50 = 300% |
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.