As we continue our deep dive into the optic production line, we’ll learn something new today. We’ll take a look at issues that affect manufacturing and businesses. Many cable producers deal with optic cable production. As it is among the largest cable production lines.
Up to now, we’ve tackled what an optic cable production line entails. Including the importation guide to Brazil.
But in today’s post, we will focus on how to calculate the ROI of an optic cable production line.
ROI means Return on Investment. It is the profit you get upon any capital you invest on a production line of business.
It’s the most important business decision, says Ian Campbell. A recognized expert on the return on investment (ROI). Checking ROI should be at the operational level. It helps ensure quick turnaround and problem solutions during deployment.
How to figure out the ROI for Optic Cable Production Line
The biggest question cable companies have about their investment is on profits. In the production niche, it entails what return on investment they’ll make. Especially when they have put in so much.
The most basic way to calculate the ROI of an optic cable production line is this:
Integrate all running costs into the business line calculation.
The formula for ROI is Net Profit / Total Investment X 100 = ROI
For instance, if a cable producer invests $80,000 into an optic cable production line. If they intend to generate $110,000 in net revenues from the equipment in two years. The ROI will be
$110,000 / $80,000 = 137%
For making investment decisions on production line purchases, ROI plays a great role. It helps in distinguishing the impressive and the low-performing investment.
This, in turn, helps the investors, planners, advisors, and managers gain more. Also helps to look into their investment returns in an in-depth way. By capitalizing on the investments with higher ROI.
In this article, we’ll look at a few diverse ways to answer these questions.
How Much Does it Cost to Invest in the Optic Cable Production Line?
When you calculate ROI, you must arrive at a good number. High positive numbers mean a good return.
With an optic cable production line, there are extra considerations. Evaluating and calculating these factors gives you the actual financial impact.
While most manufacturer’s goal is to get higher capability or developed methods. To know the ROI for a new production line, examine some factors.
First, Check the cost for maintaining and decommissioning it. Also add operation costs, while all these may dwarf the actual buying price. It will aid better investment decisions and returns.
Full Set of Optical Cable Production Line
The full set of an optical cable production line is of two divisions. Which are:
- Indoor optic cable production line
- Outdoor optic cable production line
Indoor Optic Cable Production Line
There are several factors to consider when investing in the indoor production line. To check the prospect of an indoor optic cable production line investment. And, save on time and money. Consider these:
- Factory Area
This is an important determining factor before purchasing the production line. As it needs space for proper installation. In designing the equipment layout, you can measure the area to be 270 Square meters.
- Cost of Line
Before you can figure out the ROI of a production line, you first need to calculate the Total Cost of Ownership (TCO). These comprise costs that come with operating and maintaining equipment.
You can do this with both the old and potential new product lines. The cost of the full set of the production line alone is about $75,000-$80,000.
- Freight Cost
Freight cost, which we can also refer to as freight rate. This is the fee you pay to the carrier company. It is for the transportation of the production line to the agreed location.
The means of transportation and distance are what freight entails. The basis of freight cost calculation is from our company to the location you prefer. 40HQ X 2 containers are the regulation for two sets of production lines.
The freight cost varies from time to time. You need to provide your forwarder with the supplier’s shipping. Also, add receiving ports to get the latest shipping cost.
- Cost of Raw Materials Per Month
The cost of raw materials depends on the number of orders you have. From the experience of previous buyers, we’ll make estimates looking at the highest order.
The peak cost of raw materials for indoor fiber optic cable is within the range of $30,000 to $350,000. This cost may be lower in cases of fewer orders.
Outdoor Optic Cable Production Line
The outdoor optic cable production line cost differs from the indoor type. The following factors will help you to:
explore and measure the potentials of outdoor production line investment opportunities. They are:
- Factory Area
The factory area of the outdoor production line is larger than the indoor. Base your calculation on 1150 Square meters.
- Cost of Line
Next up is the cost of an outdoor optic cable production line. Which is from $275,000 to $ 280,000. This is excluding other operational costs like area, raw material cost, etc.
- Freight Cost
We’ve covered the basis of freight cost above. But, for the outdoor line, we will estimate through:
40HQ X 6 containers. Which is the provision for 6 sets of a production line.
You can contact us for a free consultation.
- Cost of Raw Materials
The number of orders for outdoor production lines is usually higher. While it may be a bit lower based on orders, the cost of raw materials is within $300,000 to $380,000.
If you are placing an order for a production line, there will be other costs that correlate with it. For instance, overworking hour production lines. If it functions more than advised, it will increase your expenses.
On the flip side, it means your production line will likely need maintenance. And constant parts change, reoccurring wear and tear. Which may not factor into the total capital investment.
- Gross Profit
There are costs associated with producing optic cables. After purchasing a production line, you deduct a few factors. Like the costs that come with making and selling optic cables. Or, the entire costs associated with providing cables.
The profit left after deduction is your gross income. In essence, subtract the cost of cable sold from revenue.
- Net Profit
Net profit indicates the cable manufacturing profit. But you need to subtract expenditures from revenue. It encompasses the profitability of the production line. It shows how well the manufacturing and operating team does. Including running all aspects of the production line.
To calculate the above, you need to take account of the following:
- Labor Cost
Specific labor costs vary by the type of production line you choose. One operator per production line is what the indoor optic cable type needs.
While the number of people needed for the outdoor cable production line is 5-6 people in total.
The cost of business operations differs from country to country. So does tax. Try to look out for the tax cost of running each type of production line in your country.
- Sales Price/Cost Price
This also differs as currency value is not the same. It is pertinent to factor in your cost price after production. The estimation is by the type of optic cable production line buy.
- Room Rent/Utilities
You may overlook the cost of room rent if you are using personal property. But, most scenarios need you to rent a facility. It will ease the installation of your optic cable production line.
You need to add this cost to the above factors and set it aside. Till we arrive at the last variable.
- Maintenance Cost
Like any other business equipment, the optic cable production line needs maintenance. To help it remain in reliable working order. The better the maintenance culture of a production team. The fewer expenses the production line will build up.
Add your maintenance cost to the above variables.
- Wear and Tear Costs
It is worth drawing attention to what relates to better tool life. It’s not only about the tool itself if you leverage a good operator intervention. You will improve your tool‘s life.
Asides from the benefits of calculating ROI, it guides machine usage. To curb the abuse of high performance.
Every machine/part has a lifespan. Ensure you estimate and factor in this cost also to the ones above.
Return On Investment Analysis
After assessing both optic cable production lines, and their future-state values.
The next step is to analyze the differences, and then apply them to ROI calculation.
What ROI means in this scenario: it is the gain for every capital invested. Either in purchasing an optic cable production line or a business investment.
While the figures outlined above are based on high cost. Here is the analysis of ROI for optic cable production lines.
Aiming for investments or equipment purchases with a higher percentage is better. But, the favorable range is dependent on the equipment
Calculation: Net Income/ Cost of Investment = ROI
It comprises estimated profit divided by the above expenditures. Including the cost of any of the chosen production lines. Then multiply by 100
For Instance; to calculate ROI for outdoor cable production line
If the net income is = $310,000/Year (True and valid data From Chinese Factory)
Add the following costs
1. Cost of 1150 square meter = $50,000/year in China
2. Cost of line =$280,000
3. Freight fee for 40HQ X 6= $30,000
4. Cost of raw material = $380,000/Year
5. Labor cost for 6 people = $63,000/year
6. Tariffs on equipment imports= 7-25% (different for each country)
7. Corporate income tax (in China)= 25%
8. The sales price of cables: $290
9. Cost price= $220
10. Utilities: $3500/year (in China)
11. Maintenance cost= $8000
12. Wear and tear costs = $380,000 x 7% = $266,000
13. Total cost + expenditure = $1,674,850
ROI = $310,000 / $1,674,850 X 100 = 18.5%
What Factors Should I Take Into Account When Calculating ROI?
While most buyers tend to ignore a few factors e.g running costs like salary. The Hongkai team makes it easier for you. The above factors are key players to consider, it is transparent.
It helps you to make informed decisions for a better buy.
Calculate the above costs using your location/economy factors. There, you’ll get your ideal ROI.
What Is a Good ROI?
The least traditional wide view of an annual ROI is approximately 7%. But, one can consider greater percentages from stocks. Including other profitable business ventures.
The 7% ROI is average as there may be an increase with time. With optic cable production lines, the increments rate is high. As it is a long-lasting production line.
While inflation or related factors may take a downward turn. The total equipment performance will help level up ROI in cable production.
That said, specifying the suitable ROI for your investment system requires careful consideration. Rather than an easy measure, think of the level of risk you’re willing to take on.
Also, consider the enterprise category you’re investing in. For instance, To get a reasonable ROI to work with. Ask yourself the following questions:
What level of risk can I afford to take on?
What will happen if I lose the money I tend to invest?
How much revenue do I need for this investment to take on the odds of losing money?
What else can I invest in, if I don’t make this investment?
Answering these questions will help clear doubt and aid better ROI calculation.
How Soon Can I Get My Capital Back and be Profitable?
When you inquire about getting your capital back, calculate the Payback Period (PBP).
While unstable scenarios may occur which causes uneven cash flow. We recommend calculating the payback period in the following ROI.
It specifies how long it will take before the production line pays itself. As every equipment investment needs to pay itself before generating profit.
To get PBP, calculate the following:
Cost of investment / annual cash flow = the annual profit the production line will make.
Now to get how the equipment generates cash flow year by year. Subtract even cash flow(the number of years taken to recover ROI) from the payback period.
Note: Shorter PBP is ideal. Although, it depends on the type of optic cable production line you invest in.
If you invest $400,000 into the outdoor optic cable production line. And, it produces a cash flow of $60,000 per year.
400,000 / 60,000 = 6.6
The PBP will be approximately 6.6 years.
Advantages of ROI calculation
The calculation of ROI is very easy, making it one of the main advantages. Below are advantages of ROI calculation:
It Helps to Measure KPI
ROI is a key performance indicator (KPI) that helps businesses. This helps to differentiate the profitability of an expenditure. It’s very valuable for measuring success over time.
Making future decisions about investment entails a lot. Calculating ROI will take out the guesswork. As it comes with facts and figures that portray what the odds are.
Also, the size of the business or intending investment does not matter. It helps you to know if you will get your money’s worth.
It increases better asset use and management. Which improves performance that will in turn earn profit.
It Measures Profitability:
If you want to get divisional profitability upon investment, calculate ROI. If you want to relate net income to your investments, measure your ROI.
For any given production line, ROI calculation focuses on:
the level and type of investment.
Most optic cable production lines maximize profit. Thus, calculating your ROI requires you to choose the type you want. The indoor and outdoor production line is profitable.
There will be zero rates of investing in an unprofitable venture. You will only buy assets when you are sure of profit. ROI calculation serves as a cost-benefit analysis to expect from new venture proposals.
To Compare Past Results
If you want to know if your past investment is yielding profit, ROI calculation will help. It helps to compare past results to the present state.
For instance, before buying into a share, you may want to do some digging. Checking the performance in the previous 5 to 9 years is ideal. You also need to look into the company’s ROI. Even though ROI isn’t a steady factor, it should be positive. When it’s positive, then it is good for investment. If it’s too downward over the years, then pass.
As time goes on, for any business investment you make, compare the results. Comparing ROI results will help you make positive investment decisions in the future.
Without comparison, you are in for guesswork. Which may or may not profit you in the long run.
ROI Calculation Helps You Identify Opportunities for Expansion
Investing in a new production line is like adding a new department. It is a smart move as it will boost earnings. But, avoid playing a guessing game, calculate your ROI in the beginning.
Working this way will help you identify expansion opportunities. Which is a positive move for prospects.
When you predict an ROI and the actual ROI doesn’t match up, you reevaluate. The process of revaluation often leads to expansion.
For instance, when going for an optic cable production line, desire to get the ultimate performance. You can budget to train more employees to aid productivity.
The Hongkai team offers this training upon budgeted demand by the buyer. Feel free to call for a consultation. Increased productivity is an expansion means.
ROI Conforms with all Accounting Measurements
No matter the business you are dealing with, ROI calculation is the same. The formula is constant, with clear figures. It is relatable to an average business owner.
You do not need new analysis to generate data for calculating ROI. Traditional and modern accounting accepts the system, no miscalculation by different parties. Even though adjustments are necessary to compute ROI. It does not pose any trouble in measuring ROI.
Disadvantages of ROI Calculation
Curtails Profitable Expenditure
Upon ROI calculation, investors tend to focus more on immediate results. This can cause you to overlook Profitable expenditures. These expenditures can be in the form of research, training, and development.
When training and research are cut out, profit is minimal. There will be limits to productivity, which may cause a negative impact. The fear of profitable expenses is detrimental to a business in the long run.
While expense tracking and wise spending are important. Proper planning with the inclusion of profitable expenditure is a good prospect.
ROI Calculation May Affect Growth
When an investor sticks to financial factors to determine profit. it has a negative impact. Considering the impact of competent managers is also key. Good public relations and industrial connections can thrive a business.
The factors above are not major financial decisions but they aid growth. Avoid building a system that requires only financial data to thrive. While you calculate ROI, remember to plan other factors to enhance growth.
A profitable business with an unstable system will last for a short term. In Hongkai, we adapt customer relationships. Our experts offer free consultations. We can discuss what is suitable for your production line.
It Limits Flexibility
As you learn these disadvantages, work with them. We did not write it for you to know alone, take action. Ensure to execute it in your financial decisions.
The calculation of ROI always excludes room for expansion. Most times, the rate of return is the determining factor of risk to take. In most cases, a higher risk may mean a higher return. Strict ROI calculation hampers diversification.
All in all, the Hongkai group has simplified the process for you. Whether you are a start-up or an established firm, we are here to help you grow. Our expertise in optic cable production is top-notch. It has helped our customers all over the world expand.
If you want further clarification, you can reach out to our experts for a free consultation. They’ll help you figure out what works and what doesn’t. Even before purchasing your optical cable production line.
To be competitive today, you need to take advantage of high-performance equipment. The calculation of ROI clears profit uncertainty about any investment. Ensure to base your final decision on significant deciding check other costs factors. It will help you arrive at a solution that profits your optic cable production.
ROI goal is to generate profit upon investing in an optic cable production line. And, ease the cable production process. I hope that the above analysis will help you make better decisions.
At Hongkai, you can request a free consultation and price estimation. It will help to guide your ROI calculation.