THE GOLDEN RULE: Keep track of your return on capital

SHARE   |   Tuesday, 30 June 2015   |   By Nelson Letshwene

All endeavours to grow your investments and to build wealth ride on a strategy that seeks to maximise returns on your capital. Capital is what you put in, before you get returns. There are different levels of capital. We speak of human capital, intellectual capital, and of course financial capital.
When you run a business, you are careful to make sure that you hire the right human capital. This allows you to look at your return on people or ROP. If you have the wrong people in wrong positions, you will get negative return on people. People are the core of your human capital. You are putting your resources into these people in terms of remunerations, and you expect to get a higher return for your investment in people.
It is one thing to have the right people; it is another thing to have these people exert the right kind of efforts into proper activities. This allows you to measure your return on efforts or ROE. Return on efforts is closely related to your return on Activity, or ROA. What are your people doing all day long, and what are the results of their efforts? Are they continually repeating boring routine activities or are they innovative along the way? Are they able to spot when a thing, a process, or strategy is not working, and are they able to change it? Are they afraid to try new things or to quit things that don’t work?
The two big investments that most investors watch are your financial capital and your intellectual capital. In our day and age, intellectual capital is a big driver of growth. Whether you are in technology or not, it is ideas that drive growth, and most ideas are technologically driven. Consumers can buy so many things in the comfort of their homes through technology that if your goods and services are not available on line, you could be left out in the cold.
One more thing to track is return on opportunity, or ROO. Opportunity is a tricky thing because if you snooze you might lose it. Opportunity is about alertness, awareness, timeliness, and agility. If you ride the wave of opportunity too late, you may be in the dust trail and catch only the tail end of opportunity. If you are aware of your trends, you might be the leader of opportunity. Opportunity missed might never be recovered, and opportunity caught at the right time might be a gold mine.
Putting your money where your mouth is is about knowledge of the kind of returns you are looking for. The best way to measure any of your investments is to make sure that you are getting out more than you are putting in.
You measure the efficiency of your people by ensuring that they are bringing more into the business than they are taking out. Your efforts and activities should give you more results than the effort you are putting in. Your intellectual capital should be worth the efforts of creating such capital.
It is by measuring everything that we are able to determine whether we are making progress or not. If you don’t put measures in place, you will never know if you are going forward, standing still, or going backwards.
Can you answer all questions pertaining to your returns on your investments? Your effort, your activities, your intellectual capital, your people, your resources, opportunities, and your money.
To your success! Follow me on twitter @101silverline or email me at This email address is being protected from spambots. You need JavaScript enabled to view it. for any comments or suggestions.

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