- Step 1: Determine net profit Determine the company's net profit, also known as net earnings.
- TIP: Make sure not to confuse net profit with gross revenue.
- Step 2: Calculate total investment Calculate the total investment, which can be found by adding total debt to total equity.
- Step 3: Multiply by 100 Divide the net profit by the total investment and multiply by 100 to find the basic return on investment. If the net profit is $100,000 and the total invested is $300,000, then the return on investment would be 33 percent.
- Step 4: Compute stock ROI Compute the return on stock investments with a variation of the basic formula.
- Step 5: Find the value Imagine you invest $5,000 in a company. One year later, the stock's value has risen to $5,200 and you earn $100 in dividends. Use the new formula to calculate your ROI at 6 percent.
- FACT: In 1919, the DuPont company developed their own ROI formula, known as the DuPont Formula.
You Will Need
- Math skills
- Pen and paper or calculator