1. What is ROI?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency of an investment or compare the efficiency of several different investments. It measures the amount of return on an investment relative to the investment's cost.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( Gain \) — The amount of money earned from the investment
• \( Cost \) — The initial amount invested

Explanation: The formula calculates what percentage of the original investment has been gained (or lost) as profit.

3. Importance of ROI Calculation

Details: ROI helps investors determine which investment opportunities are most profitable, compare different investments, and make informed financial decisions.

4. Using the Calculator

Tips: Enter the total gain from your investment and the original cost of the investment. Both values must be positive numbers, and cost must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: A "good" ROI depends on the investment type and risk. Generally, 7-10% is considered good for stock market investments, while higher-risk investments may aim for higher returns.

Q2: Can ROI be negative?
A: Yes, a negative ROI means the investment resulted in a net loss (gain was less than cost).

Q3: What are the limitations of ROI?
A: ROI doesn't account for the time value of money or the holding period of an investment. It's best used for comparing investments with similar timeframes.

Q4: How is ROI different from profit margin?
A: ROI measures return relative to cost, while profit margin measures profit relative to revenue. ROI is used for investments, while profit margin is used for business operations.

Q5: Should I consider inflation when calculating ROI?
A: For long-term investments, it's often helpful to calculate "real ROI" by adjusting for inflation to understand the actual purchasing power gained.