Question

Why is Cost Analysis important? How to determine whether investments are profitable?

Answer 1

IMPORTANCE OF COST BENEFIT ANALYSIS-

1. Cost AnalysIs are important because they simplify complex business decisions.

2. Another benefit of a cost analysis is that it provides an objective way to compare projects.

3. While a cost analysis can help a company estimate the net benefit of a project, benefits are typically more difficult to predict than costs.

4. A cost analysis can be a useful tool for decision-making, but the accuracy of a cost analysis is limited by the thoroughness of recognizing likely costs and benefits.

Return on investment (ROI) is a ratio between net profit (over a period) and cost of investment (resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favorably to its cost. Return on investment, or ROI, is the most common profitability ratio. There are several ways to determine ROI, but the most frequently used method is to divide net profit by total assets. So if your net profit is $ 50,000 and your total assets are $150,000, your ROI would be .33 or 33 percent.

Net Present Value Method is also another method of calculating whether your Investment is profitable. If NPV is Positive, Investment is Profitable. We can also compare different Investment Options using this.