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  • 1.  [Advice] Recommendation on Return on Investment

    Posted 07-14-2014 17:51
    This message has been cross posted to the following eGroups: Business and Economic Statistics Section and Statistical Consulting Section .
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    Hello, group.

    I have had about two years experience in finance. And I'm currently working on a project asking me to estimate the Return on Investment on one project which is in healthcare industry.

    I mostly use NPV to estimate that ROI and adjust it by regression. But now I feel very uncomfortable of staying at this level. If anyone could give me some direction of advancing, I would highly appreciate that.

    Does any one could give me some advice on this: how to estimating the return on investment?

    A theory, a book, or even a website for guildence would all be great for me.

    Thank you.

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    Jin
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  • 2.  RE: [Advice] Recommendation on Return on Investment

    Posted 07-14-2014 17:54
    Since this is what economists do, I would find an economist and talk about it with her.

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    Paul Thompson
    Director, Methodology and Data Analysis Center
    Sanford Research/USD
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  • 3.  RE: [Advice] Recommendation on Return on Investment

    Posted 07-14-2014 17:57
    I will echo that point, and add that I suspect that this analysis might raise all sorts of thorny issues pertaining to selection bias, analysis of highly skewed health care cost data, and other pitfalls to be determined.

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    David Mangen
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    Original Message


  • 4.  RE: [Advice] Recommendation on Return on Investment

    Posted 07-14-2014 20:13
    I'm an economist, so I think I can help here.

    The NPV is the correct criterion for evaluating investments.  Period.  The only problems with NPV are applying it to a portfolio of projects and dealing with stochastic costs or returns.  The real options literature is concerned with the latter.  If net returns are not stochastic and you are dealing with a portfolio, you have to consider factors like liquidity (bankruptcy risk) and time horizon.  The Adjusted Present Value takes into account equity financing and taxes.

    A variant of the ROI, as an investment selection criterion, was mistakenly advocated by Keynes.  Your approach of calculating it using the NPV is correct.

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    Charles Coleman
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  • 5.  RE: [Advice] Recommendation on Return on Investment

    Posted 07-15-2014 09:39
    Does anyone mind to suggest a website or a book for this kind of topic?

    Thank you.

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    Jinxiang Zhou
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    Original Message