Finance for Non-Finance Managers

Hello Karen,

Hope you enjoyed your Microsoft Finance for Non-Finance Managers course with Best STL.

Thank you for your question regarding measuring perfomance.

Return on investment is a fundamental business concept where investors’ funds are attracted by the best rate of return. Remember, though that different investments carry different risks, so the rate of return must reflect the level of risk taken.

You must therefore compare different ratios to determine which will provide the best return for the lowest risk. For example you can compare the 'Return on Equity' ratio with the 'Return on Capital Employed' ratio the latter being the same as 'Return on Net Assets'.

The short answer to your question is no... Return on Capital Employed is not the same as Return on Investment.

Whenever you are performing a Return on Investment exercise you will be examining the ratios produced by certain calculations such as Return on Equity and Return on Capital Employed and then comparing the results and making an investment decision based on risk factors.

The formula for Return on Equity is as follows: -

Profit after tax/Shareholders' funds

The formula for Return on Capital Employed is as follows: -

PBIT/Capital Employed (Net Assets)


I hope this resolves your question. If it has, please mark this question as resolved.

If you require further assistance, please reply to this post. Or perhaps you have another Microsoft Office question?

Have a great day.
Regards,

Rodney
Microsoft Office Specialist Trainer