The Rudiments Of Finance


In this case the ROI would be 1% — not an impressive performance. At this rate, it would take 100 years to earn back your investment. Depending on the specifics of your situation, you should target at least a 10% to 20% return on your investment. To return to your initial question, you are making money if your business is profitable. The next question my site is, how profitable is your business? This is often measured by return on sales, or ROS, which is calculated as profit divided by sales. The appropriate ROS target is a function of your specific situation, but for many businesses a 10% ROS is a good target (obviously, more is better). Once you understand your profitability, make sure that this translates into an acceptable positive cash flow. As a finance expert told us, “You can’t buy beer with profit, you can only buy beer with cash.” Finally, make sure that your ROI is acceptable. If you are achieving your target ROS, but you still aren’t getting the ROI that you need, the answer is likely that you need to grow your sales without making additional investment. In other words, you need to improve your asset utilization (sometimes expressed as sales divided by assets).