Return on investment - ROI
Return on investment - ROI
Hi friends, first round of posts with 1 value from 3.
I want to sharpen some of the financial relationships that a lot of investors from many areas use and sometimes they make a salad.
The first financial ratio is ROI
(return on investment)
Or Hebrew yield on investment. Another name for this ratio is ROIC
(Return on investment capital)
Or in Hebrew a return on the invested capital. In both cases the intention is the same.
ROI is calculated by dividing the EBIT by the amount of money invested.
EBIT = EARNING BEFORE INTERST AND TAXES
This refers to profit before financing expenses (interest, etc.) and before taxes. In Hebrew, this refers to operating profit.
In the case of this real estate property rental income less management expenses / municipal property insurance and large any income less expenses with an emphasis on the current !!
(In some cases the NOI can be compared to the EBIT but for convenience, let's put it aside)
Just for emphasis: EBIT is an accounting profit and NOI is cash flow.
The purpose of the ROI ratio is to show how much return the property knows to generate on a regular basis regardless of the manner of financing the property (equity / loan from an interest-free / hard money / mortgage etc מא ..) and before taxes.
For example: if I bought an asset in 100,000 $ and the property generates annual rental income of 14,000 $ and assume that the management expenses of this company 1400 $ annual, annual insurance 1000 $, and municipal taxes 2000 $ we receive operating income (EBIT) of 9600 $ (2000 - 1000 - 1400 - 14000).
So the ROI will be 9600 (EBIT) divided by 100,000 (total investment) and we will get a ROI of 9.6%.
In the next post, we'll talk about ROA and ROE post-return on capital (or equity, to be precise) and the differences between them.
I'll use the number example I've given here to clarify the differences in future posts.
Hope you produced value 🙂 ????
Link to the original post in the United States Real Estate Forum on Facebook - Works on a desktop computer (To view the post must be members approved for the forum):
http://bit.ly/2NkKFIG
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Thank you very much
Lior Slim - Amazing post! That it hurts me to speak in rhymes! We would love to be hoisted to Wikipedia Wikipedia “I! Thank you very much and very much!