Which of the following affects ROI?

Profit Return on Investment- affects Capital Employed

Hello Team,

Inflation, an economic concept, is an economy-wide sustained trend of increasing prices from one year to the next. The rate of inflation is important as it represents the rate at which the real value of an investment is eroded and the loss in spending power over time. Inflation also tells investors exactly how much of a return (%) their investments need to make for them to maintain their standard of living.

The easiest way to illustrate inflation is through an example. Suppose you can buy a burger for $2 this year and yearly inflation is 10%. Theoretically, 10% inflation means that next year the same burger will cost 10% more, or $2.20. So, if your income doesn't increase by at least the same rate of inflation, you will not be able to buy as many burgers. However, a one-time jump in the price level caused by a jump in the price of oil or the introduction of a new sales tax is not true inflation, unless it causes wages and other costs to increase into a wage-price spiral. Likewise, a rise in the price of only one product is not in itself inflation, but may just be a relative price change reflecting a decrease in supply for that product. Inflation is ultimately about money growth, and it is a reflection of too much money chasing too few products.

With this idea in mind, investors should try to buy investment products with returns that are equal to or greater than inflation. For example, if ABC stock returned 4% and inflation was 5%, then the real return on investment would be minus 1% (5%-4%).

So, you can protect your purchasing power and investment returns (over the long run) by investing in a number of inflation-protected securities such as inflation-indexed bonds or Treasury inflation-protected securities (TIPS). These types of investments move with inflation and therefore are immune to inflation risk.

Regards,

Saiyid

option 3 is correct answer

Number 3:  Profit and Capital employed

Capital employed_________________________--A

agree with all expert answers

The asset mix of an investment portfolio determines its overall return. There is a risk-return tradeoff with every asset -- the higher the risk, the higher the volatility and return potential. For example, stocks are generally riskier and more volatile than bonds, but the rates of return on stocks have exceeded those of bonds over the long term. An investment portfolio fully invested in stocks is likely to suffer in a down economy and during periods of high market volatility. On the other hand, a conservative portfolio invested mainly in high-quality bonds is likely to have lower but more predictable and stable returns.

The strategic and operational fundamentals of the underlying businesses affect investment returns. Strategy involves positioning a company to take advantage of opportunities and responding effectively to competitive threats. Operational execution involves managing costs, expanding into new markets and continually innovating to stay ahead of the competition. Companies that consistently meet sales and profit expectations generally see their stock prices outperform market averages. Conversely, companies that lose market share and miss earnings expectations underperform the market.

Macroeconomic conditions affect investment rates of return. A growing economy means that more people have jobs, which means they spend more. For businesses, this leads to increases in sales, profits and investments in new employees and equipment. However, rapid economic growth can lead to higher interest rates. This makes credit more expensive, thus dampening consumer spending and business investments. Economic slowdowns lead to low employment, which usually means lower profits and stock prices. The resulting weakness in the stock markets could improve bond prices as investors move funds to the relative safety of bonds.

Fiscal policy, regulations and political stability also affect investment rates of return. Large fiscal deficits reduce government flexibility and may result in higher borrowing costs for businesses. An arduous regulatory approval process can hamper business investments in the resource and energy sectors. Political stability creates investor and business confidence because there is more visibility into possible investment returns. Investors tend to avoid countries that change governments frequently or have civil strife.

Agreeing with the expert answers. Option 3

3. Both of the above=================

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I fully agree with the answers been added by EXPERTS..............Thanks.