Monday, 27 February 2012

Rate of Return


The Rate at which we get our money back. It is % of  money we gain or loss in specific time period. An investment with business motive will only get return, we should not and cannot expect ROR for money invested in charity.But most people invest in charity with some hidden motive. Mostly the hidden motive is to get cheap popularity(I likes to quote a thirukural here)
ஈகை - Charity
221 – வறியாருக்கொன் றிவதே ஈகைமற் ரெல்லாங்
குறியெதிர்பை நீரது உடைத்து
To give the poor is charity
the rest is loan and vanity
A simple rate of return Formula ROR = Revenue or profit - (Operating expense + Depreciation) / Intial Investment
Different type of investment will have different formulas to work out, investment on new motor cars for personal use will always have a negative returns. Investment on gold and land mostly will have positive return.
I assume a case here, I got a car worth 8 lacks INR and i am using it only for personal use.  ROR will be -ve here.  Assuming in a year i spend 20,000 for expense and it depreciated a lack rupee, the figure here is
= 0-(20,000 + 1,00,000) / 8,00,000 = -15%
If i use my car as call taxi the figure will be different, I am the driver and getting a revenue of 3,00,000 with little more expense. the figure here is
=3,00,000 - 1,40,000 / 8,50,000 = 18.8%
Another interesting fact about car is new car never appreciate but we can buy old car and sell it to a higher rate.

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