Return on investment and other analysis
INTRODUCTION: ROI is a basic tool for a company to measure its financial performance and on the basis of that they invest in future also and its also gives a good picture to shareholders and as well as investors. ROI is also used to compare the efficiency of the company’s investment with other competitors and then measure the efficiency of return with the market return. The formula for calculating ROI is stated as,
ROI = (Gain from investment-Cost of investment)/Cost of investment.
The cost of investment is the amount of money that has been invested in a particular project and the gain is the profit that you get from that investment. If ROI is positive, companies should invest in a particular project.
As we can see in the case that is given, the company is operating in different geographic regions from where they are receiving revenues from different operations. The pattern that is been shoed in the data of company is quite interesting. The revenues are constantly increasing year wise. In 2006 the revenues were $99816, in 2005 $88410, in 2004 $82888 which is showing the company is progressing continuously at a constant rate which is a good sign for investors. But when we analyze the segment of operating income we see a downfall in operating income very huge in amount. Although on yearly basis it is increasing but the income is very low as compared to the revenues which shows that the company is not managing its expenses. They are doing lot of extra expenses which is giving a negative picture of the company. Assets show a healthy picture because it shows that company is also expanding in terms of assets which at large increase the efficiency. Depreciation and Amortization expense are in control.
1. Richard A. Brealey, Stewart C. Myers. 1984. Principles of corporate finance. McGraw-Hill.