What is a 2x return on investment

Return on Investment: Is Your Investment Really Profitable? - How efficiently does your total capital investment work?

Concept and meaning

The return on total investment

(GKr) or Return on assets or return on assets (RoA) is a key figure in economics and is also known as corporate profitability.

The Total capital A company consists of equity (EK) and outside capital (FK). Equity is in turn the balance of assets and liabilities and debt is the sum of liabilities and provisions.

Put simply, the total capital corresponds to the balance sheet total (sum of all liabilities) of a company. However, short-term liabilities are often deducted from outside capital in the calculation (adjusted total capital).

With the Overall profitability so will the Profitability of a company expressed. Key figures that also describe the profitability of a company are also the Cash flow, Return on investment (ROI) and the Return on equity.

The total return on investment denotes the Interest on the total capital employed within a certain accounting period and answers the question of how efficient an investment was or is. The key figure is more informative than the return on equity, as it takes into account the borrowed capital used in the investment.

The total return on capital (GKr) is thus the ratio of the result (annual surplus or deficit after taxes plus borrowing interest) to the total capital employed (GK).

Differentiation between total return on investment and return on investment (ROI)

In general, both financial metrics are similar. However, when calculating the return on investment (ROI), the operating capital is used instead of the total capital, i.e. the GK is adjusted for non-operating components.

In addition, the operating result is used when calculating the ROI, i.e. the annual result is corrected for non-operational items.

requirement

At one-man business and Partnerships (OHG, KG) The (imputed) entrepreneur's wages must be deducted from the annual surplus, as this is not included as a cost in the profit and loss account with these legal forms!

At Corporations (GmbH, AG), the salary of the entrepreneur / managing director / board member is already taken into account as an expense in the income statement.

In addition, the Borrowing Interest to be added back to the annual result, as they were deducted in advance and reduced the annual surplus.

calculation

Formula: