Investment Income Ratio is used analyzing the investment attractiveness of the enterprise. It shows how active the investment activity of the enterprise is and whether the enterprise receives passive incomes.
Alternative names of the Investment Income Ratio:
- Investment Income Ratio
What Does the Investment Income Ratio Show?
Active investment programs indicate the possibility of generating enough money not only to support the operating activity, but also to receive additional income from the investments. Such incomes are usually called the passive ones. Therefore they are more profitable if viewed from the investor’s side. Investment cash inflows are the funds received from the financial investments and the sales of non-current assets. If such measures take place, the enterprise reduces its own assets. At the same time, revenues from the owners and lenders are considered financial inflows. Thus, the indicator shows the degree of investment activity of the enterprise.
Formula of the Investment Income Ratio
IIR = Incoming Investment Cash Flow / (Incoming Investment and Financial Cash Flows)
Normative Value of the Investment Income Ratio
Depending on the needs of the company, the indicator can exceed 1 or not. The value of this indicator is lower, if an enterprise doesn’t actively invest in another businesses and does not sell its own assets. Instead, if the enterprise invests actively and receives income from this activity, the value is usually higher.