8/11/2019 Return of Investment

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Calculate the ROI of the distributor given below:

XYZ Marketing is in the distribution business of Nextel Telecom(PBTs),Matrix

Telecom (EPABX), Nokia Mobile Phones & Sharp fax machines.The Distributor has

deployed funds from his own sources.

Principal Revenues Margin CDNextel Telecom 1.5 Cr. 7% 3%

Matrix Telecom 0.8 Cr. 12% 3%

Nokia Mobile Phones 1.8 Cr. 2% Nil

Sharp Fax 0.6 Cr. 5% Nil

Expenses/Month

Electricity-Rs. 30,000

Telephones-Rs.12,000Admin. & Support Staff-Rs.28,000

Rent-Rs.15,000

Conveyance-Rs.8000Total = 93,000

Calculate the ROI for Nextel Telecom for the Month of April 2014.Opening Stock-16 Lakhs

Receivables-15 LakhsCredit Notes pending from the Co.- 2 Lakhs

Stock in Transit- 8 LakhsSecondary sales- 18 Lakh

Outstanding with NTL-NilSchemes-1.5%

TAB(Quarterly+Annually)-0.75%VAT-12.5%

RETURN ON INVESTMENTS

NEXTEL TELECOM

Investments:

Opening Stock (Starting of the

month : Value)

Add : Purchase from NTL (Value)Receivables from the Market

(Value)

Credit Notes due from NTL

(Value)

Less : Secondary Sales for the

month (Value)

O/s with NTL

Months

April 2004

24,00,000

16,82,242.9015,00,000

2,00,000

18,00,000

00

May 2004 June 2004 July 2004

Net Investment 39,82,242.90

8/11/2019 Return of Investment

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Income :

Sales Margin for the Month (On

Secondary Sales Value)

Add: Cash Discount from NTL (Value)

TAB (Quarterly + Annually)

Schemes (Value)

Less: Administrative Expenses

Interest Charges (Value)

Indirect Expenses (Related to

Business)

117757.10

45,188.28

11,297

4518.83

46,459.50

29,680

Net Income 102621.71

Formula for ROI = Net Income

Net Investments

Note: The investments and expenses should be strictly restricted to the business of the distributor

with NTL

Total Revenues = 1.5 Cr. + 0.8 Cr. + 1.8 Cr. + 0.6 Cr. = 4.7 Cr.

Proportionate Expenses of NTL (1.5 Cr. / 4.7 Cr.) * 93,000 = 29,680

Opening Stock at the beginning of the month

Opening stock + Stock in transit = 16,00,000 + 8,00,000 = 24,00,000

Basic Purchase Value (x ) = 1,800,000/ 100+ (Margin (7%) + VAT (12.5) )

x = 18,00,000 *100119.5

x = 15,06,276

Net Income margin = 18,00,00016,82,242.90

= 1,17,757.10

Add CD @ 3% = (3% * 15,06,276) = 45,188.28

Add TAB @ 0.75% * 15,06,276 = 11,297.07

Add Scheme @ ( 20% of 1.5% 15,06,276) = 4518.83Why only 20% scheme is retained?

Subtract Interest @ 14%(Why 14%) = ((14/12) * 39,82,242.90) / 100 = 46459.50

ROI = Net income = 102621.71 * 100

Net investment 39,82,242.90

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= 2.57 % per month

ROI = 2.57 * 12 = 30.92 % per year

What is the channel decision you should take for the above ROI?