How is the rate of return on invested capital calculated

The higher the rate of return on capital, the better the economic benefits of the company's own investment, the less risk for investors, and it is worth investing and continuing to invest. Therefore, it is an important basis for investors and potential investors to make investment decisions. For business operators, if the rate of return on capital is higher than the cost of debt cost ratio, it is beneficial for investors to operate with moderate debt; Conversely, if the rate of return on capital is lower than the cost of debt cost ratio, excessive debt management will harm the interests of investors.

Return on capital = net profit after tax Owners' equity.

In layman's terms, it is the rate of return received for investment and the cost of this investment. Here's a simple example:

The cost of an investment is 10,000 yuan, and the remuneration for a certain period of time is 1,000 yuan, then the return rate of this investment during this period is:

The formula for calculating the return on investment is: investment return rate = annual EBIT or average annual EBIT total investment of the project * 100%.

The rate of return on investment refers to the ratio of the total annual net income of the investment program to the total investment of the program in a normal year after reaching a certain production capacity of the design. It is a static indicator to evaluate the profitability of an investment program.

There are many ways to invest in financial management, such as bonds, bank wealth management products, etc.; No matter what kind of financial institution it is, you must choose a safe and formal financial institution.

Investment and financial management are risky, the higher the return, the higher the risk, the lower the return, the lower the risk, so you should choose the financial products that are suitable for you based on your actual situation to avoid unnecessary risks.

How to calculate the return on investment without a quiver? Next, let's introduce it to you, let's take a look at the cave.

The return on investment refers to the ratio of the total annual net income of the investment plan to the total investment of the program in a normal year after reaching a certain production capacity of the design, and its calculation method is: investment return rate = annual EBIT or average annual EBIT The total investment of the project * 100%.

The return on investment varies from industry to industry, generally between 5% and 20%. The higher the return on investment, the better, but don't ignore that the return on investment is actually related to the investment time, the same investment amount, the longer the investment time, the higher the return on investment should be.

The return on investment reflects the advantages and disadvantages of the investment effect to a certain extent, and can be applied to various investment scales, and its application indicators, according to the different purposes of analysis, can be divided into total investment return (ROI) and return on capital (ROE).

In the actual calculation process, the calculation formula of the investment rate of return is highly subjective, so it can not fully reflect the performance level of an investor, and the calculation formula of the rate of return ignores the time value of funds factor, sometimes standing in different evaluation angles, the conclusions may be completely different, so investors should consider from many aspects when using the investment rate of return.

The formula for calculating the return on capital is: return on capital = net profit.

Average capital*100%.

1. The capital in the rate of return on capital refers to the paid-in capital.

Capital refers to the presence of an enterprise in the administrative department for industry and commerce.

The registered capital, therefore, the capital is the registered capital.

Under the authorized capital system, the total amount of capital determined at the time of the establishment of the company does not require investors to pay all their capital contributions at one time, but only the first installment of capital contributions, and entrusts the board of directors to raise capital after the establishment of the company.

The use of paid-up capital is a better choice.

2. The rate of return on capital refers to the ratio of the after-tax profit of an enterprise to the investment of capital and its capital premium, also known as the "rate of return on capital".

The higher the rate of return on capital, the better the company's own investment efficiency, the smaller the risk and the greater the return. The rate of return on capital of an enterprise can be used as an important reference for investors to choose investment, and the higher the rate of return, the better.

Extended Information: Investors can perform a ROE analysis for the following purposes:

1. Inspect and judge the investment benefits. The analysis of the return on capital is the basic indicator for investors to check and judge the quality of investment returns, and it is the basic basis for making investment decisions.

2. Inspect and evaluate the operation and management of enterprise managers. The rate of return on capital is a concentrated reflection of the quality and efficiency of the operation and management of enterprise managers, and through the analysis of the rate of return on capital, investors can check and evaluate the quality of the operation and management of enterprise managers.

3. The rate of return on capital is the main indicator for investors to assess and check their capital preservation and appreciation.

4. For single-family enterprises, the net profit is the after-income tax profit of the enterprise; For group enterprises, net profit refers to the net profit after tax attributable to the parent company.

Average capital = [(Paid-in capital at the beginning of the year + capital reserve.

Number of the beginning of the year) + (the number of paid-in capital at the end of the year + the number of capital reserve at the end of the year)] 2 The above capital reserve refers only to the capital premium (or equity premium).

5. Enterprises implement accounting standards.

After that, the capital reserve that can be used to form the fair value change income of ** financial assets should be excluded in the calculation of the rate of return on capital.

1. The formula for calculating the return on investment: rate of return = (cost of income - 1) x 100% (income: refers to all the funds withdrawn in the investment cycle);

2. When the income becomes the index (or the principal), it is a positive rate of return. Common rate of return conversion: The investment cycle, usually referred to as investment and the corresponding rate of return, usually implicitly includes the investment hand scatter period.

3. The daily rate of return refers to the rate of return of 1 day, and the daily rate of return is the basis for the conversion of other rate of return.

4. Annualized return, the annual rate of return is also known as the annualized rate of return, and the daily return can be deduced from the annualized rate of return.

5. For example, if the cost (principal) is 10,000 and the annualized income is 8%, then the income of the whole year is: 10,000x8%=800, and the daily income: 800 Bishou 365=.

6. As you know, the monthly income is related to the number of days in the month (28, 29, 30, 31), but the number of days in a year is roughly certain (365), so the annual rate of return is used more.

Return on capital is calculated as follows: Return on capital = operating income after tax Total capital total assets - excess cash - non-interest-bearing current liabilities) = net income - taxes) Total capital total assets - excess cash - non-interest-bearing current liabilities) = net income - taxes) shareholders' equity + interest-bearing liabilities).

Further Information] Limitations on Return on Capital.

As an accounting valuation method, ROIC may have the following pitfalls:

1.being manipulated by managers;

2.Affected by changes in the accounting system and accounting system;

3.Subject to inflation and exchange rate fluctuations.

One thing that is certain is that if a company's operating income is less than the cost of capital, then it is generally unlikely that it will be able to create value unless its ROIC exceeds the cost of capital (WACC [weighted average cost of capital]).

1. Return on capital.

Rate of Return: The ratio of the interest paid on the bond in installments to the current market of the bond**.

The rate of return on funds is the ratio of the invested or used funds to the relevant return (usually expressed in the form of interest earned and/or profits). It is used to measure the effectiveness of the use of invested funds.

Return on capital employed (ROIC) is a metric used to evaluate the historical performance of a company or its business unit. Discounted cash flow, as we know, determines the final (future) value of any company, and it is also one of the most important indicators for evaluating a company. Bump off tracks.

At the same time, the rate of return on capital can also be used to measure the total return on capital in the macroeconomy, and the ratio of the output of capital input to the capital stock is the total rate of return on capital. Where the rate of return on capital is high, capital will flow in the next period, which in turn will increase investment and accelerate economic growth. Digging.

2. The role of Return on Capital (ROIC):

1.It is an indicator used to evaluate the historical performance of a company or its business unit. Discounted cash flow, as we know, determines the final (future) value of any company, and it is also one of the most important indicators for evaluating a company.

2.The rate of return on capital can also be used to measure the total return on capital in the macro economy, and the ratio of the output of capital input to the capital stock is the total rate of return on capital. Where the rate of return on capital is high, capital will flow in the next place, which in turn will increase investment and accelerate economic growth.