For a company to sustain financial health, it should incorporate payback method, net present value, and internal rate of return. It is a responsible means of providing those invested in the company with the means to understand the overall financial health of the company. Furthermore, these tools and methods can provide the internal and external forces that influence the overall financial health of the company. Evaluation of return on investment (ROI) ROI evaluates and compares the different investments made and invested by the company (Aacker, 2001). Calculating ROI means dividing the benefit (return) of an investment by the cost of the investment. The result of this calculation is a percentage or ratio (Investopedia, 2014). Additionally, there are step-by-step calculations that senior executives will use to calculate a company's ROI according to the procedures defined by (Berman and Knight, 2008). ROI indicates the return on investment. The first step is to provide information on whether to continue the project or stop it. Through the reimbursement method, take this first step. The payback method is the length of time it takes to recover the cost of an investment (Berman and Knight, 2008). This method provides senior executives with the knowledge to whether or not to embark on a business. For example, if the business has longer payback periods, the investment is not desirable. Berman and Knight (2008) also noted a problem with this method, firstly it does not measure profitability and secondly, this method ignores the time value of money. For example, if you do not take into account the concept of “time value of money”, you may not see other possible business opportunities. This is why the second step is fundamental. This... is a piece of paper... the health of a company. For example, gross and net profit ratios indicate how well the company manages its expenses (Berman and Knight, 2008). Return on equity (ROE) explains how well the company uses its assets/equity to generate returns (Berman and Knight, 2008). Furthermore, return on investment indicates whether the company is generating sufficient profits for its shareholders (Berman and Knight, 2008). Again, a higher ratio or value is desirable. A higher value means the company is doing well and is good at generating profits, revenue and cash flow. Conclusion To sustain financial health, a business should incorporate all the tools and methods mentioned above. In conclusion, it is critical that those who invest understand that a company does not invest imprudently. Furthermore, there is an ethical and moral influence to maintain financial health.
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