Roe -- Roi

[mnphysicist]

When I left the world of day to day management, the corp was transitioning from an ROI metric to ROE. I have litle formal business training, I'm a scientist most of my business ed occured by placing my head next to a wall and banging on it.

Could someone send me to some good links that can elaborate the pluses and minuses of ROE vs ROI.

Thanks
Ron

[philipwhite]

No problem Ron I found a good link that describes the difference here.

http://www.investinginland.com/return_on_equity.htm

"An investor can buy a $1 million apartment building that will provide a net cash flow before debt service of $50,000 per year. This investor decides to buy the building with a 20% down payment and finance the remainder with a mortgage.

http://www.investinginland.com/_themes/boldstri/bstrbu1.gif The ROI here is $50,000/$1 million or 5%.
http://www.investinginland.com/_themes/boldstri/bstrbu1.gif The ROE here is $50,000/$200,000 or 25%.

The Crucial Difference Between ROE and ROI

The above example should also illustrate the crucial difference between ROE and ROI."

[mnphysicist]

Thanks,

Now I need to figure how that translates to manpower vs intangible skill set capablility from an engineering standpoint.

Eg if we put in $10,000 of labor to get a job which pays $100.000 the ROI is easy to determiine.

However if we put in $10,000 of labor, plus skills/capability equiity to get the job, the ROE calculation gets complex... especially with identifying the skills/capability equity.... For example, $10,000 of highly skilled labor and complex equipment is going to have a lower ROE thant $10,000 of newbie labor and simple equipment.

Equipment wise its not too tough, but putting an equity value on skills/capabilities is the challenge... as 90% of the time in engineering hourly rates do not reflect that.

Thanks for the info
Ron