Calculating returns can be done using several methods, including:
1. Return on Investment (ROI): ROI = (Net Profit / Cost of Investment) x 100 This simple formula helps in understanding the efficiency of an investment.
2. Internal Rate of Return (IRR): IRR is a more complex calculation that considers the time value of money. It is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
3. Payback Period: This measures how long it will take for the investment to be recovered from the cash inflows generated by the business.