Question

Department managers are often told that ROI must be increased. They are not given an explanation of what ROI stands for, how ROI is calculated, or how they are supposed to increase it. If you were to lead a meeting related to ROI at your place of work, what topics would you cover? How would you explain ROI in a way that would be meaningful for the audience? What criticisms would you expect? How would you respond to the criticism?

Answer 1

Return on investment means that a performance measure that the companies used to compare the investment's efficiency and the efficiency of many investments that the company uses. ROI helps the company to directly measure the amount of interest on a particular investment opportunity. It is a considerable measure because it is versatile and straightforward. The ROI gives the amount of return on the stocks that the stakeholders hold of a particular company. The investments and the returns from the investments help the companies to expand their businesses in various product lines or markets. The companies and the managers can calculate the return on investment by dividing the current value of investments by the investment cost. The current value of the investment is the proceeds that the companies earn from the investments' sale. The cost of investments refers to the actual face value of the shares or the stock option. ROI also helps the companies to know their miscellaneous and extra profits. The stakeholders and the managers should know the best investment option by calculating the return on the investment. For example, A company should go for an option that provides a 10% return instead of 8%. The return on investment is the only way to gain a competitive advantage over other companies. Hence, it is of crucial importance. The criticism can be that it becomes difficult to calculate the ROI. However, it is easier to calculate than the other calculations crucial for the company. Hence, it is essential to calculate the Returns for every investment option.