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So I am doing this project, which includes in calculating the Economic Metrics for a profitability analysis. I have calculated Return on Investment (ROI), Net Present Worth (NPW) and Payback Period (PP). But the problem is that the values for my project are not 'textbook like', if you can call that. I have the following.

ROI = -60 %/yr

PP = -4 years

NPV = -200 Million

I am having trouble in understanding what the above actually mean in terms of investment. The way I have understood is the following:

For ROI, since it is negative, therefore the cost of the investment is way higher than the current value investment. Looking at the formula, it should mean that the we have a 60% loss every year, with regard to the actual value of the investment.

For PP, this I don't fully understand. If the payback period is negative, does it mean that the investment is never reached, but instead 3 years worth of investment is also lost? Or that the investment period should be increased by 3 years in order to get profit?

For NPV, does it mean that the outflow is 200 million higher than the inflow? Is this based on inflation or something else.

I am not fully sure about the 'analysis' of these for an investment and their 'meaning'.

If anyone can help or give a hint, it will be highly appreciated.

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Based on the first and second number it seems that your investment has more costs than benefits, so if all those flows were to be brought to present value, the project will lose 200 Million. This is consistent with the fact that it has a negative return of $60\%$ on average. However, the pay-back period makes no sense. I think that you probably just applied a formula and since on average you are losing money every period ($60\%$), being in this situation one less year is considered by the formula as making that money (instead of loosing it), hence "the time that will take you to pay-back the investment" is -4 years. You probably don't want to present that number, since this is not its natural interpretation, and instead say that the project is never paid back.

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  • $\begingroup$ Thanks a lot man! It really made sense to me the way you wrote it. $\endgroup$ – MathCurious314 May 10 at 11:22

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