It is essential to calculate the rate of return of a company in order to make decisions regarding business management, determine cost cutting measures to be implemented, and even define whether it is worth continuing with the venture.
If such important decisions are based on indices such as the rate of return, optimizing its calculation helps the manager make decisions in a faster and safer way.
Check out this article for more advantages to improving your company’s analyzes.
What is a company’s rate of return?
First of all, you need to understand what rate of return is. Making a profit is not enough for a company to have a positive rate of return. The rate of return is an important metric in evaluating a business’s performance. With its calculation, you can see if it offers a long-term return.
Usually, this measure is analyzed for periods longer than those of profitability, for example. The latter is a more immediate index, as it considers earnings in shorter periods.
To calculate a company’s rate of return, one must consider the net profit – that is, the total turnover subtracted from the total expenses – and the amount invested in the enterprise. By doing so, it is possible to understand whether the efforts and resources employed are generating return within an acceptable period or if there is loss of money invested.
In a simple way, the rate of return calculation is:
Rate of return = net profit x 100/total investment
If the capital spent to put the business in operation has been far greater than the enterprise’s ability to generate profit, there is an imbalance, and it is likely that the company is no longer profitable. That is why it is so important to follow this indicator.
Check out the advantages of using software to calculate the rate of return
As we have seen, the formula for calculating a company’s rate of return is relatively simple. However, many managers find it difficult to keep track of all their company’s numbers due to the size of the venture. In this context, using a cost and profitability management software is a good solution.
Read further to understand the key benefits of using a specific tool to make calculations for your business.
It optimizes time and evaluation process
With so many financial spreadsheets, it is not uncommon for managers to spend a lot of time analyzing company data. With software, you can gather and examine information in a faster and simpler way.
Thus, it is possible to organize more efficiently, making the evaluation process easier and reducing the hours spent using manual labor. That way, you will have more time to focus your attention on results and think about strategic actions.
It provides reliable information
Software also helps to reduce errors and mismatched information, as the platform allows monitoring data in a more automated way.
By including numbers in the tool, you can access comparisons and charts. Thus, it is easier to understand expenses and revenues, as well as the rate of return, in order to make safe decisions.
It allows evaluating the company’s operation
Another advantage of using specialized tools is that they allow a self-assessment of the company’s operation. From the indices, the manager can verify the company’s return and be aware of the points that need attention.
It helps reduce costs and expenses
The simplification of the visualization of costs also allows the cut of expenses, as the tool makes the understanding of areas with more expenses possible. Thus, the manager can improve the company’s financial management and optimize its results.
It supports decision-making
More accessible and secure data create the possibility of more agile and supported decision-making. Thus, using software makes it easier to understand a business’s rate of return and allows the entrepreneur to perform informed actions for the company’s future – for example, making changes in its operation.
Are you looking for ways to optimize your company’s rate of return calculation? Discover our solution for controlling costs and profitability. MyABCM Corporate is a versatile and sophisticated software that allows giving dynamism to highly complex analyzes with great data volume.