How to Calculate Savings to Investment Ratios

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Businesses use the saving-to-investment ratio to determine whether a project that aims to save money in the future is worth doing. The ratio compares the investment that the business has to put in now with the amount of saving the business will get from the project. For example, if the business changes all its bathroom fixtures to water-saving ones, the saving-to-investment ratio calculates whether the saving would justify the investment.

Obtain a price quote on the total projected cost of the project from your suppliers.

Determine the useful life of the project. For example, if you install new bathroom fixtures and expect them to remain in good working condition for five years, the project would have a useful life of five years. You may ask the suppliers about warranties and averages of useful life to arrive at this number.

Calculate the amount of saving you would get from the project over its projected useful life. For example, if you usually spend $1,000 each year for water bills and expect to pay only $500 each year after the project, you would save $500 each year. Over five years, you would save a total of $2,500.

Divide the total saving over the project's useful life by the cost of the project to obtain the saving-to-investment ratio. For example, if you have to make an investment of $1,000 for the savings of $2,500 over five years, the project would have a saving-to-investment ratio of 2.5 (from $2,500/$1,000). The project has to have a saving-to-investment ratio of at least 1 to pay for itself.