Shared venture, how to calculate temporally adjusted ROI

Aug 13, 2016
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United Kingdom
Hi All,

Can't work out if I'm massively overthinking a possibly simple conundrum, or if I've stumbled into a genuinely tricky bit of accounting (for a novice). Apologies to waste your time if it's the former, and many thanks in advance if it's the latter and you can help me out!

The calculation I'm trying to make is of respective ROI in a shared venture between three unequal investors/equity partners in a project, of which I am one (and supposedly the mathematically literate one at that!). Not too tough on the face of it, but I get lost when trying to take into consideration the fact that not all the partners invested their money at the same time and I would like the final equity/ROI shares to reflect the differing times that each partner's capital has been tied up.

Specifically, two of the partners have been invested for 21 months, and the third for only 14 months. The total capital investment proportions are 71.94%, 20.86%, and 7.20%. The 7.20% partner is the one who's only been invested for 14 months, and the 21.86% partner is buying out the former's share of the project. Prior to the third investor coming onboard, the equity shares were 80/20. The project has returned a 10.38% profit over the 21 months.

So the question is, given the differing amounts of time of each partner's investment and the shifting equity shares over the total span of the project, how do I calculate the correct temporally adjusted equity share and thus arrive at a figure that the one medium sized partner needs to pay the smallest partner for her share of the project?

Is it just as simple as calculating 14 as a % of 21 (66.67%) and then calculating 66.67% of 7.20% of the total value increase of the project to date? Or do I have to do something clever to factor in the period of time before the 7.20% investor when the equity shares were different (80/20)?

In the end these guys are trusting me to work this out correctly and equitably as the project is too small to afford paying an accountant to wave their magic wand/calculator and make the correct numbers appear. Instead we've got me, and I really don't want to screw it up! It doesn't need to be an absolutely perfect calculation as we have been relaxed about ongoing costs here and there, but I'd like to get it within 0.1% if I can.

If I've missed out any crucial details then let me know!

Many thanks!


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