What is RoI, RoA, RoCE?

Return on Investment: Return on Investment is the gain or loss based on the amount of money invested by investor or company. Return on Investments deals with the amount that invested in business and amount realized from such investment. Return on Investments cannot be equated with Return on Equities. Both are different terms. Return on Investment can be computed by way of following ways.

Return on Investment = Net Profit /Total Investment

Return on Assets: This ratio provides a how management makes an efficient use of its assets to generate more earnings. Management of a company shall make an investment in a such way that it results into high earnings. For example, if a Company A earns Rs.1 cr. after investing Rs.10 cr. then Return on Assets is 10% whereas if other Company B earns Rs.1 cr. after investing Rs.20 cr. then Return on Assets is 5%. It means, Company A has used its assets in best possible manner to generate earnings. Return on Assets can be computed by way of following formula:

Return on Assets = Net Income/Total Assets

Return on Capital Employed: This ratio provides earning made by the company from its Capital employed. Capital employed includes Shareholder’s equity along with debt liabilities. It provides a how efficiently capital employed is invested in the business to generate more returns. Return on capital employed can be computed by using following formula:

Return on Capital Employed = Earnings before Interest and Tax / Capital Employed