Measuring Profitability

Investors have one overriding reason for measuring the profitability of an investment:  deciding whether to purchase or sell their investment.

Good guidelines for measuring profitability lead to the maximization of wealth, which means maximizing the value of all the assets an investor owns (real estate or otherwise).  Four of the most popular methods for measuring return are:

• Net Present Value
• Internal Rate of Return
• Return on Equity
• Payback

This analysis will produce some curious results:

• A project can have more than one internal rate of return.
• A manager who makes a 25% return on investment might be better than a manager who makes a 30% return on investment.
• A payback period of 8.5 years can be better than a payback period of 4 years.

Robert Schmitz
Robert Schmitz Corporate Real Estate Advisors