How Would I calculate ROI from a Profit and Loss Income Statement?
How Would I calculate ROI from a Profit and Loss Income Statement?
Homework Answers
ROI (Return on Investment) is the gain or loss incurred on the money invested.
For calculating ROI, we need net profit from profit and loss
account.
Net profit should be net profit before interest, tax and dividend.
Just one point to note here is ROI and ROE is different from each
other.
The formula for Return on Investment (ROI) is Net Profit
before Interest, taxes and dividend divided by Capital
Employed.,
where Capital Employed is the total of Equity Share Capital,
Reserves and Surplus,Preference Share Capital, Loans and Debentures
less fictitious assets/expenses, if any.
The formula for Return on Equity (ROE) is Net Profit after Interest, taxes and preference dividend divided by Equity fund., wherein Equity Fund the total of Equity Share Capital, Reserves and Surplus less fictitious assets/expenses, if any.
As the question specifies ROI, we need Net Profit before deducting interest on Debentures/Loan, taxes and dividend.
So, ROI can be calculated from Profit and Loss using the formula specified above,
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