Return On Invested Capital for Dummies
noun
What does Return On Invested Capital really mean?
Hey there! I'm so glad you asked about "Return On Invested Capital!" Let's dive right in and make sure you understand it clearly, using simple and not complex words.
Imagine you have some money, and you decide to invest that money into a business or a project. The "Return On Invested Capital" (ROIC) is a way to measure how much profit or value you are getting back from that investment. It's like keeping track of how well your money is doing for you.
Let me explain it in a more relatable way. Think of your investment as a magic money tree. You plant your money into the ground and hope it grows into a big tree that produces fruits (or profit). The ROIC is like the measuring stick you use to see how many fruits (or profit) your tree is giving you. It helps you decide whether it's a good idea to continue investing or if you should try something else.
Now, there are a couple of ways we can calculate the ROIC, but let's stick to the basic formula for simplicity. We divide the profit (or money you made) by the amount of money you initially invested, and then multiply it by 100 to get a percentage. So, if you invested $100 and made a profit of $10, the ROIC would be ($10 divided by $100) multiplied by 100, which equals 10%.
This percentage gives you an idea of how well your money is working for you. A higher ROIC means you are getting more profit or value from your investment, which is a good thing. On the other hand, a lower ROIC means your investment is not generating as much profit or value, and you might want to consider other options.
It's important to note that different businesses or projects will have different ROICs. Some businesses might have a high ROIC because they are very successful and generate a lot of profit, while others might have a lower ROIC because they are still growing and investing a lot of money to expand.
So, to sum it all up, "Return On Invested Capital" is a way to measure how much profit or value you are getting back from an investment. It helps you evaluate the success of your investment and decide whether to continue or explore other options. It's like keeping track of how well your magic money tree is doing. I hope this explanation cleared things up for you!
Revised and Fact checked by Emily Davis on 2023-10-29 17:39:02
Return On Invested Capital In a sentece
Learn how to use Return On Invested Capital inside a sentece
- If you start a lemonade stand and you make $10 as profit while you invested $50 in buying ingredients and equipment, then your Return On Invested Capital is -80%, because you lost more money than you made.
- Imagine you buy a toy for $5 and sell it to your friend for $10. Your Return On Invested Capital would be +100%, because you made a 100% profit on your investment.
- Suppose you start a small garden. After spending $20 on seeds and tools, you harvest vegetables worth $40. This means your Return On Invested Capital is +100%, because you doubled your initial investment.
- Let's say you invested $100 in a business project and after a year, you earned $120. Your Return On Invested Capital would be +20%, because you gained a 20% profit on your original investment.
- If you invest $200 in a savings account that pays you $10 in interest after a year, then your Return On Invested Capital is +5%, because you earned a 5% return on your initial investment.
Return On Invested Capital Synonyms
Words that can be interchanged for the original word in the same context.
Return On Invested Capital Hypernyms
Words that are more generic than the original word.
Return On Invested Capital Category
The domain category to which the original word belongs.