Return on Investment
NSG 6620 Week 5 Discussion Question 2: Return on Investment
Return on investment (ROI) is a financial performance measure used to evaluate and determine the efficiency of an investment on a number of different measures. The ROI is calculated by examining the benefit (return) of an investment divided by the cost of the investment. The result of this calculation is a percentage or a ratio. For example, the formula for ROI is as follows:
ROI = (Gain from the investment – Cost of the investment) / Cost of the investment
It should be noted that there is more than one way healthcare organizations may compute and calculate the ROI for a new service or product line.The ROI is not always calculated in direct dollars, but it may be calculated as the ability to contribute to the organizational mission and philosophy.For example, a nonprofit healthcare organization may want to partner with a local community endeavor and establish a free clinic with low-dollar ROI but with a tremendous feeder of new patients to primary care services within the organization. Using the readings for the week, the South University Online Library, and the Internet, respond to the following: Develop an ROI for a new project (such as the implementation of a new Level 3 neonatal intensive care unit [NICU]). Summarize the issues and challenges in formulating an accurate ROI for a new product or service line. Identify two major challenges and two major barriers for unit managers or the CNO accountable for ensuring ROI on a new product or service line. Comment on the postings of at least two peers. Evaluation Criteria: Developed an ROI for a new project (such as the implementation of a new Level 3 neonatal intensive care unit [NICU]). Summarized the issues and challenges in formulating an accurate ROI for a new product or service line. Identified two major challenges and two major barriers for unit managers or the CNO accountable for ensuring ROI on a new product or service line. Justified your answers with appropriate research and reasoning. Commented on the postings of at least two peers.
ADDITIONAL DETAILS
Computing Return on Investment
Introduction
ROI is a simple and straightforward concept, but it’s one that can be difficult to apply. In this post we’ll explain the ROI formula and how it can be used to compute an investment’s profitability.
One approach to establish valuation is to compute return on investment (ROI).
The most common way to compute ROI is to divide the return on investment (ROI) by the cost of capital. The cost of capital is an estimate of what it would take for you to make an investment in your business, and includes risk factors such as interest rates and inflation.
One approach to establish valuation is to compute return on investment (ROI). This can be done by calculating how much money you make compared with how much money you spend, or by measuring how efficient an investment has been in terms of both profits and costs.
ROI is simple and straightforward to understand.
ROI is a simple ratio that tells you how much money you got out of an investment compared to how much money you put in. It’s expressed as a percentage, and it’s calculated by dividing the amount of money earned by dividing it by your original investment. For example, if your company spent $100,000 on equipment and received $500 in revenue from its operations last year (a 50% ROI), then this would be your operating profit after taxes:
Operating Profit = Revenue – Expenses – Other Income
ROI is expressed as a percentage
ROI is expressed as a percentage, and that’s because it’s calculated using net income (the difference between revenue and expenses) and net investment. Net income is the difference between revenue and expenses; in this case, it’s also called gross profit or operating margin. The other number you’re looking for is your net investment—the amount of money you put into a business before you receive any returns on that investment.
The result is then expressed as a percentage.
To calculate the return on investment, you must first determine how much money you spent and how much profit was made. Then, you can use the formula to calculate your profit margin.
The result is then expressed as a percentage.
Use the ROI formula to measure how profitable an investment has been.
In order to calculate ROI, you need to know both the net profit and the total investment. The formula used for calculating return on investment is:
ROI = (net profit / total investment) x 100
For example, if a company has a net profit of $100 and it spends $1 million in money on its project, then its return on investment would be 100%. This means that for every dollar spent on your project or product line (in this case), you made more than six dollars back!
Conclusion
When it comes to investing, the ROI is an important metric. By determining how much money has been returned on a particular investment, you can calculate how profitable it was. This is useful information as it can help you decide whether or not an investment was worth making in the first place and if so, how it should be managed going forward. In this article we’ve explored four formulas that will give us some insight into ROIs:
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Average Annual Return (also known as AAR) – Calculates the average annual return over multiple years of investment data.
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Weighted AAR – Calculates weighted average return over multiple years of investment data instead of using just one year’s worth of returns at once.
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Target Rate Of Return (TROIR) – Measures actualized value minus initial capital invested minus costs incurred throughout life cycle period of investment being considered; also known as cost-cover ratio (CCR).
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Internal Rate Of Return (IRR) – Compares alternative investments based on time value lost due to reinvestment opportunities missed throughout life cycle period prior to replacement decision being made regarding replacement asset held currently with any other alternative under consideration currently available thereon.
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