Are you curious about how your company is doing? Did you invest in a new asset last year and you have decided to review how the asset did overall? You can use the accounting principle called return on investment or ROI. ROI is the amount of money a company lost or gained because of a specific venture. The ROI is measured in a percentage.

The ROI calculates how efficient the company has been with an investment by looking at its own transaction records and money invested. For example, say you invested $1,000 into DE-SIGN, a start-up design company, and Write Right, a writing company. Six months later, you discover that your DE-SIGN has made $10,000 from clients and customers. Your company has made $9,000 profit DE-SIGN. Write Right made $8,000 from clients and customers with a profit for you of $7,000.

ROI is about determining how much you have gained from all of your investments. In order to determine the amount gained, you would need to take into account the interest, net income, profit, gain or losses from DE-SIGN. You find you have a total of $10,000 in six months. You would subtract the gains or losses by the investment amount of $1,000. You would take into account the specific asset, principal and capital cost of the investment. You spent $1,000 on DE-SIGN. You would use ROI to compare the two investments.

With DE-SIGN, you have an ROI of 9 (the gain, $9,000, divided by the investment, $1,000) and with Write Right you have an ROI of 8 (the gain, $8,000, divided by the investment, $1,000). This means that you have a better return on your DE-SIGN company than with Write Right.

ROI is about decision making for your company. You cannot make the right decision if you do not look at how your investments are doing. You could use the ROI to determine how to increase your gains and keep the profits rising. Accountants look into the average rate of return, profitability index, payback period and the net present value. You can use this information to determine if any changes need to be made with how billing is done and so forth. It is important to take a hard look at your investments to see how they are doing. Make sure you keep great financials for your company so that you always know how your company is doing.