I would like to ask what does Gross Profit Deviation percentage in ROI Calculator mean? What does it mean when it ask you how many deals generates less than the acceptable gross profit?
Hope someone could answer my questions.
I am taking a guess here (never having used SAP Business one) but it is probably something along the following linesu2026u2026When evaluating any investment decision there are typically at least two financial related areas that are examined, (excluding any key strategic reasons)
1) An examination of the Return On Investment expressed as both an IRR rate (Internal Rate of Return) and expressed as the length of time for the payback period (no of years)
2) The NPV or Net Present Value of the future cash flows that arise from the investment decision
Without going into the detailed financial maths here they are related, the discount rate that returns a zero NPV is the IRR. At this level the investment is a neutral weighted investment ie the organisation is no better or worse off (from a financial perspective). Assuming that the NPV calculations have treated the cost of capital correctly then this rate is also sometimes called the "Hurdle Rate". An organization may add 1-5 % or greater to the WACC (weighted Average Cost of Capital).
Actually an organization may treat an NPV > 0 or just use WACC as the hurdle rate but it does not matter, what matters is that there is an arbitrarily assigned Return on Investment threshold that should be met. In simple terms the organization should be economically better off after the investment is made and hence the Gross Profit deviation measure or how close to the hurdle rate does the investment finally come?
Of course I may be completely on the wrong track here..