Return On Investment – the necessity of profit

  • Who can make the demands on the company

 

  • –Why ROI and Share Holder Value Program

 

  • –Why new Financial Ratios?
  • –Owners/share holders need:  dividend 200*0.1  => 20 Eur
  • –Lenders e.g. banks need interest  => 50 Eur
  • –Company itself, retained earnings  => 20 Eur (need for R&D expenses 5-6% e.g. in car industry)
  • Tax authority, income tax 60%  => 60 Eur

Grand total: 150 Eur

 

Total shareholder return target

 

  • Interest rate for long term government bonds => 3%
  • Equity risk premium => 8%

 

REQUIRED SHAREHOLDER RETURN      11 %

11% to be achieved by (e.g.) 

4 % Dividens

7 % Share Price increase

 

Necessary profit is

based on ROI targets

i.e. 15 %!!!

 

Probable sales

./.Necessary profit

= Allowable cost