Finance Essay Sample on Return on Investment

Return on investment (ROI) is a method that is used to measure the performance of an investment that an individual engages in, and it involves the measurement of the costs of investment and the performance of the investment in different settings (Lee, 2012, p213). This helps in the measurement of the efficiency of the investment compared to the efficiencies of other investments. This is done by relating the measurement of the returns of an investment in comparison to the cost of the investment, and the result is expressed as a percentage of the total. In a more simplified form, the difference between the return on investment and the cost of investment is divided by the cost of the investment and the result expressed as a percentage (Raugei, 2012, p577). ROI helps investors to know with certainty the success of investment plans and to devise ways that they can use to make the investment plans to be more profitable in the economy.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

Overview of ROI

There are various purposes of the ROI and one of the major benefits of the ROI in the society is to act as a comparison among various projects. This helps to ensure the identification of best performing projects in the society to aid in the selection of the best performing investments for the maximization of profits. In this case, ROI is directly related to the returns that investments give, and this helps in the estimation of profits from business ventures in the economy (Vazquez-Rowe, 2014, p382). It must, however, be made clear that ROI should not be considered as the profits in investment platforms and that it is used as an estimation of the profits and the return that investments bring in the society.

The ROI has direct relation to the marketing decisions that various organizations make and this is because the return on investments and the costs of investments directly relate to the marketing processes of various organizations (Misra, 2011, p510). This is because when organizations carry out efficient marketing in the society, there is a great likelihood that the business ventures would record high returns, and this would lead to low costs of operation. This would then cause the success of the businesses to be high leading to higher efficiency in the business platforms in the society. Besides, the usage of assets and capital requirements directly relate to the marketing decisions which the affect the value of ROI. This makes marketers in the society to adopt the ROI to aid in the understanding of the positions of their organizations and the returns that they expect in order to consider their investment ventures viable (Kaplan, 2015, p101).

Justification of a soft ROI

There are two main types of ROI in the investment ventures in the society, and each of the ROI has their benefits in the calculation of the productivity of investments in the modern society. The two main types of ROI in the investment platforms are the soft ROI and hard ROI. Although both ROIs have their own benefits, the benefits of the soft ROI become challenging to quantify due to the fact that the benefits are indirect and that they depend on the business cases (Frost, 2014, p700). In this case, the soft ROI requires that analysts take various steps in order to quantify its benefits and this makes it hard for the society to approve the use of soft ROI in the determination of the returns of investments in the business organizations.

An example of the application of the soft ROI is in the improved up-sell or in the cross-sell where a new CRM system helps call centers to improve interaction with the customers. In this light, the society can benefit from the use of the soft ROI to aid in the improvement of the interaction with the customers and businesses can then realize the various benefits that the soft ROI causes to businesses in the society (Lemoine, 2014, p302). In order to maximize on the importance of the up-sell/cross-sell, the call centers should ensure that they apply the soft ROI as expected so that they help to change the relationships with the customers, and this then ensures that the customers increase the purchases in the business venture. The direct effect of the cause and the effects of the soft ROI help to quantify its benefits in the society.

Moreover, there are other benefits of the soft ROI in the society, and some of them include the improvement of the lead conversion rates and the reduction of the business cycles. This leads to the growth of various economies in the society and helps various businesses to prosper in their aims to ensure that there is an increase in profits in organizations (Thomas, 2012, p413). The soft ROI also has some benefits to the productivity in organizations, and this is because there is no direct elimination or automation of a process task. This ensures that business operations take place in a continuous manner that helps in minimizing the steps that are required to affect the business plans in organizations. The third benefit of the soft ROI is that it reduces business risks when the new security systems, compliance management, and disaster recovery solutions are implemented in business organizations (Murphy, 2011, p52). This helps in improving the level of confidence that investors have in the society. Finally, soft ROI leads to the reduction of downtime, and this improves the workability of server and system availability in the society.

Justification of capital expenditure

Capital expenditures, otherwise called capex, are the expenditures that are used to alter the future of business firms in the society. This is the expenditure that is used when businesses spend money in the purchase of fixed assets or to add value to the existing assets in the business organizations. This usually takes place when businesses plan to extend the lives of assets in the society to extend the lives of the taxable years (Henke, 2011, p499). Capex gets much use in the cases when companies plan to acquire or upgrade the assets in the company with the view of ensuring that the assets are more profitable to the businesses. One of the major benefits of capex is that it increases the basis of the assets leading to the longevity in the maximization of profits in the society. An additional benefit of the capital expenditure is that it serves to increase the efficiency of productions in the society, and this helps in maximizing the profits in the society.

Capex also has another advantage to businesses in the society in that it ensures that the society can operate for longer years, and this helps to maximize on the operation of businesses in the society. Finally, the fact that the IRS requires that business tax return reflect depreciation on the capital expenditures, this ensures that businesses enjoy the tax write-off for a number of years which minimizes the operational costs and helps in the maximization of profits in the society.

Analysis of completed ROI

In the analysis of the ROI, there are three issues that come into play and which influence the success of the analysis in the society. One of the critical principles that guide the analysis of ROI is the strategic objective of ROI analysis and how businesses plan to use the analysis in order to ensure that the businesses gain from such analyses in the society. The second benefit of the ROI analysis is the place and the importance of the IT investment relating to the ROI analysis and the formation of the overall enterprise (Withey, 2012, p1252). This ensures that analysis must conform to the business formations and that the results must lead to the development of the business objectives in the society. Finally, the ROI analysis in organizations must ensure that it fits in the overall context of decision making in organizations and that it helps in the development of ideas that aid in the proper running in organizations.

There are various strategic analyses of the ROI analysis, and these help in the determination of how the analysis is done in the businesses in the modern society. The questions that help in deciding the objective of the ROI analysis are such as the identification of the critical issues that the projects would cause to the business objectives, the factors that are associated with the business investment and the recipients of the impacts of the business (Falster, 2012, p410). Besides, some issues that require keen analysis are such as the necessity for the analysis for the approval and support of the proposed business projects and the worth of the project to necessitate the ROI analysis.

Bibliography

Lee, S., Aos, S., Drake, E., Pennucci, A., Miller, M., & Anderson, L. (2012). Return on investment: Evidence-based options to improve statewide outcomes. Olympia: Washington State Institute for Public Policy.

Raugei, M., Fullana-i-Palmer, P., & Fthenakis, V. (2012). The energy return on energy investment (EROI) of photovoltaics: Methodology and comparisons with fossil fuel life cycles. Energy Policy, 45, 576-582.

Vazquez-Rowe, I., Villanueva-Rey, P., Moreira, M. T., & Feijoo, G. (2014). Edible protein energy return on investment ratio (ep-EROI) for Spanish seafood products. Ambio, 43(3), 381-394.

Misra, S. C., & Mondal, A. (2011). Identification of a companys suitability for the adoption of cloud computing and modelling its corresponding Return on Investment. Mathematical and Computer Modelling, 53(3), 504-521.

Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

Frost, J. J., Sonfield, A., Zolna, M. R., & Finer, L. B. (2014). Return on investment: a fuller assessment of the benefits and cost savings of the US publicly funded family planning program. Milbank Quarterly, 92(4), 696-749.

Lemoine, P. A., Woodard, H. C., & Richardson, M. D. (2014). Return on Investment: Are Green Schools Worth the Cost?. Marketing the Green School: Form, Function, and the Future: Form, Function, and the Future, 302.

Thomas, C., Sagapolu, R., Wang, Y., & Toker, A. (2012). Maximizing Return on Investment for the University of San Francisco Athletic Department Through Sponsorship.

Murphy, D. J., & Hall, C. A. (2011). Energy return on investment, peak oil, and the end of economic growth. Annals of the New York Academy of Sciences, 1219(1), 52-72.

Henke, R. M., Goetzel, R. Z., McHugh, J., & Isaac, F. (2011). Recent experience in health promotion at Johnson & Johnson: lower health spending, strong return on investment. Health Affairs, 30(3), 490-499.

Withey, J. C., Lawler, J. J., Polasky, S., Plantinga, A. J., Nelson, E. J., Kareiva, P., ... & Reid, W. (2012). Maximising return on conservation investment in the conterminous USA. Ecology Letters, 15(11), 1249-1256.

Falster, D. S., Reich, P. B., Ellsworth, D. S., Wright, I. J., Westoby, M., Oleksyn, J., & Lee, T. D. (2012). Lifetime return on investment increases with leaf lifespan among 10 Australian woodland species. New Phytologist, 193(2), 409-419.