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Return on Investment - ROI

 
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Richard Glover



Joined: 29 Sep 2008
Posts: 185
Location: Ealing, London, UK

PostPosted: Fri Nov 05, 2010 8:14 am    Post subject: Return on Investment - ROI Reply with quote

"What is the true return on capital?" This question arose during a chance conversation with Brian Hodgkinson [author of A New Model of the Economy, Shepheard-Walwyn, 2008].

This seems to have some relevance to other subjects raised on this forum, such as money and credit availability, and access to common resources such as land/location etc.

Taking "real" capital (goods required for the production process, eg plant, machinery and stock), in a free market in standard textbook terms there would only be "normal" profit as a return for supplying these goods.

In practice, an investor in a new business will often be considering what protection it has. This could be intellectual property on a new product, a monopoly situation, or some other means of ensuring competition is kept at bay. Financial capital will be poured into the venture if there is a sufficient return on it.

I suspect the return in the latter case will typically be much larger than normal profit levels, even allowing for any risk compensation. Some form of economic rent could be involved.
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