The Return On Investment Is The Amount Of Profit Expected From An Investment

The Return On Investment Is The Amount Of Profit Expected From An Investment

Length: 1207 words (3.4 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

4.1 Return on investment is the amount of profit expected from an investment. For example, I invested $194 on a pair of limited edition sneakers knowing that there would be a demand for them in the aftermarket. I listed them for $350 and sold them for $300. The return on my investment was $106. This is what is meant by a return on investment.
Income comes in forms of dividends from stocks, mutual funds, or interest received on bonds. Income for an investment is the money that investor receive periodically from investments they own. Capital gains/losses focus on the change in an investment’s market value. If the investment sells for more than the price it was purchased for, it is considered a capital gain. If the investments sell for under the original price it was purchased for than it is considered a capital loss.
4.2 Historical performance data provides an idea, or a basis, on what to expect in the future. Although they give a start of what to expect, this doesn’t mean that the data will guarantee future performances. Historical data must be studied carefully in order to make a solid estimate on future expectations.
External forces are factors that cannot be controlled by any one investor or person. These forces include Federal Reserve actions, wars, and price controls. Investments could react differently depending on these factors. This means that while one investment’s worth goes up, a different investment’s value can drop, simultaneously.
Internal characteristics are forces that include types of investments, quality of management in firms, and the way the investment is financed. Investors expect a certain return by big time companies that are being run efficiently compared to a small based company that isn’t doing as wel...

... middle of paper ...

...ment’s expected return takes time value of money into consideration.
Use historical data or projected return data to evaluate the risk involved with the investment you’re making. A couple of ways to evaluate an investment’s risk are by making sound judgements, calculating the standard deviation of its returns, or by using a different method mentioned within the chapter.
Look up the risk-return characteristics of every investment option to be sure that the return you’re expecting is worth the risk you take. If you can take less risk and make the same return or same risk with a higher return, you investment is not worth it.
Always be sure to make investments that offer the best returns that correlate with the kind of risk you’re comfortable taking. If you manage to get a high return for the risk you’re willing to take, than that would be considered a “good” investment.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

The Creation And Composition Of An Investment Portfolio Essay example

- Investment Enhancement Paper The creation and composition of an investment portfolio is not an easy task, the investor must ensure that they have both financial stability and profitability. Appropriate asset classes ensure that an effective and profitable portfolio is being put together, with later revisions being an option if changes need to be made. A successful portfolio will include assets from both the domestic and international market in order to improve the portfolios exposure to risk in each market....   [tags: Investment, Asset, Risk, Derivative]

Better Essays
1231 words (3.5 pages)

Profit Margin Ratio And Profit Ratio Essay

- Profitability: According to the income statement, the profit margin ratio decreases as well with 2.5%. However, the sale revenue has a rise in this period actually and it means the company spends more money on operating expense. Therefore this increase on operating expense indicates a worse control of expense. On the positive side, the ROCE of 2014 and 2015 maintains approximately 30%, it exceeds the industry average (25%). The high ROCE can be caused by the high asset turnover. Obviously, the rate of return on capital employed is much higher than the rate at which the company borrows....   [tags: Financial ratios, Debt, Dividend yield, Finance]

Better Essays
1165 words (3.3 pages)

Notes On Return On Investment Essay

- Formula: (RETURN ON INVESTMENT: [EQUITY =net income/shareholder’s equity] & [ASSETS=Net income/total assets]) Between the years 2011 and 2012, return of equity (net income divided by shareholder’s equity) decreased from 8.13% to -0.48%. Between 2011 and 2012, return of assets (net income divided by total assets) decreased from 2.5% down to 0.12%. Between the years 2012 and 2013, return of equity increased (-0.48% to 2.81%). Shareholders would have been happy with this slight increase. Between 2012 and 2013, return of assets increased from -0.12% to 0.68%....   [tags: Generally Accepted Accounting Principles]

Better Essays
1789 words (5.1 pages)

The Benefits of an Entreprise Offering Profit Sharing Essay

- Another group continuum represents incentive plans that by cooperation of all organizational members create a culture of ownership. These common incentives are profit sharing, and stock option and employee stock ownership plans (ESOPs). According to Coates (1991) “profit sharing plans are defined as an arrangement in which companies make contribution, based on profits, to individual employee account” (p. 19). It can be distributed in form of cash (added to paycheck) or in a deferred form, where employer contributes to a retirement trust (Kruse, 1993, p....   [tags: culture of employee ownership]

Better Essays
1089 words (3.1 pages)

An Mock Investment Advisor Case Analysis Essay

- Mini Case Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money....   [tags: finances, company, income]

Better Essays
1707 words (4.9 pages)

Rebalancing the Student Managed Investment Fund Essay

- Question 1: The company that I was assigned was Exelixis Inc. The organization is a small-cap growth company in the health care sector, and is expected to underperform the market over the next six months with very high risk ( Based on the value line report for this security, short-term gains are feasible. Having a technical rating of 2, which was raised recently, it is likely that Exelixis Inc. will grow in the short term. However, long-term, this stock scores poorly with a rating of 4 for timeliness....   [tags: learning business and finance management]

Better Essays
897 words (2.6 pages)

Net Present Value and Other Investment Criteria Essays

- The purpose of this paper is to explain the importance of net present value along with other investment criteria used in determining the value of business decisions regarding today’s investments for future returns. The paper will define what is meant by net present value and show how managers can use it as an analysis tool to decide if an investment is worth the calculated risk. Also, there will be three methods discussed that managers can use to propose the best financial projects to invest in to increase revenue for its owners....   [tags: corporate profits, financial projects, payback]

Better Essays
1220 words (3.5 pages)

Risk Analysis on Investment Decision Essay

- Risk Analysis on Investment Decision Silicon Arts, INC. (SAI) is a four year old company that manufactures digital imaging integrated Circuits (IC's) that are used in digital cameras, DVD players, computers, and medical and scientific instruments. Hal Eichner, SAI's Chairman, has a two-point agenda for the company to increase market share and keep pace with technology. As the Financial Analyst for the company one must analyze two mutually exclusive capital investment proposals. The two options are to expand the existing Digital Imaging market share or enter the Wireless Communication (W-Comm) market....   [tags: Corporate Finance]

Free Essays
1067 words (3 pages)

Arundel Partners Investment Analysis Essays

- Arundel Partners Investment Analysis EXECUTIVE SUMMARY Background The proposed business venture, Arundel Partners, is an investment group which would purchase the sequels rights associated with all films produced by 1 or more selected U.S. movie production studios for a specified period of time, or a specified number of films. As your investment analysts, our goal is to assess the value of the sequel rights to allow a determination of the value of the overall investment as well as a reasonable price-per-film for the sequel rights....   [tags: Business Analysis Management]

Better Essays
1865 words (5.3 pages)

Researching Profit of Pro Football in Ottawa Essay

- Researching Profit of Pro Football in Ottawa Between 1876 and 1996, Ottawa was home to the professional football team know as the Rough Riders. After spending most of their last years on financial life support, the Rough Riders died a quick death in November 1996 when the Canadian Football League (CFL) revoked their franchise. The team began accumulating debt in 1985 under then-owner Allan Waters of Toronto, sparking an endless series of financial battles between city hall and the different owners in which came and went....   [tags: Papers]

Better Essays
2513 words (7.2 pages)