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Figuring gross investment is one way of factoring a business’s investment in an asset, and it is commonly total investment without factoring in the asset’s depreciation. If the business does not remember how much it spent on the asset, then one way of figuring out gross investment is to add the asset’s current value and depreciation. This figure is used for nearly anything in which a business invests, such as equipment, property or land. Return on investment (ROI) is a figure that determines whether the investment was a success, and the gross investment is commonly used in this calculation.
As a business asset gets older or is used more, it depreciates or lowers in value. For example, a piece of equipment that was purchased for $50,000 US Dollars (USD) may be worth only $45,000 USD the next year. To ensure that the business knows its current asset value, each asset is valuated either every quarter or every year. The gross investment, or total investment, is the amount of money the business used initially to purchase the asset. In this case, it would be $50,000 USD.
While the gross investment is generally the original investment in the asset, a business may forget what it originally invested. If this occurs, a formula involving the asset’s current value and the total depreciation from its original value can be used to make the calculation. For example, if land is worth $100,000 USD and has been depreciated by $20,000 USD, the two are added together and the total investment is $120,000 USD. An asset also may rise in value, such as if land and property values increase; in this case, the amount of increased value would be subtracted from the current value.
Gross investment is used to express the total investment for nearly every business asset. The most common assets are tangible, such as land, equipment, property and inventory. Intangible assets such as trademarks and patents also may be included.
ROI measures how much money a business made on its investment, and this is commonly measured against the gross investment. If a business generates $5,000 USD from a $4,000 USD investment, then its ROI is $1,000 USD. The current value of the asset can be used, but this can lead to skewed results. For example, if the current value of an asset is $4,000 USD but the total investment is $7,000 USD and the business made $5,000 USD, it would look like a gain but this would really be a $2,000 USD loss.
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