One other thing that is of interest (although not one of the BIG FOUR numbers that matter most) is ROI, return on investment. This is sometimes called MARGIN. It refers to the amount of money that it cost a company (investment) compared to (ratio) the amount of money it earned (returns).

If I buy a new house for $500k, put another $200k into fixing it up, then sell it for $750k, I have generated $50k in revenue from an investment of $700k.

The formula for determining net profit (return) is the NET PROFIT ($50k) divided by the TOTAL INVESTMENT ($750k) multiplied by 100. So in the example, 50,000/750,000 = .0714. When we multiply that figure by 100 we learn that our ROI is 7.1%.

Now, the question is — Is a 7.1%  return good or bad? What do you think? How can we find out?


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