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Expected Return On Investment (ROI)

Expected Return On Investment (ROI) in working capital is the return a company expects to earn from investing into working capital. Formula: Expected ROI = Expected Annualized Return ÷ Capital Invested

Why It Matters

  • •Provides a forward-looking return metric comparable to cost of capital.
  • •Incorporates both profitability and the time required for capital to complete a cycle.
  • •Avoids common misconceptions found in e-commerce dashboards where ROI is calculated as profit ÷ cost without accounting for time.
  • •Helps assess whether an inventory investment is financially attractive relative to alternative opportunities.

Connection to Capital

Expected ROI expresses the annualized return on invested capital, enabling direct comparison with borrowing costs, investor expectations, or alternative capital uses.

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