1. What is ROI?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment. It compares the gain from an investment relative to its cost.

2. How Is ROI Calculated?

The calculator uses the basic ROI formula:

Where:

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

Explanation: ROI measures the return relative to the investment's cost. A positive ROI means the investment was profitable, while negative ROI indicates a loss.

3. Importance of ROI Calculation

Details: ROI helps investors compare the efficiency of different investments and make informed decisions about where to allocate resources for maximum return.

4. Using the Calculator

Tips: Enter the total gain from your investment and the total 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, higher is better, but investors often compare ROI to benchmarks or alternative investments.

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

Q3: What are limitations of ROI?
A: ROI doesn't account for the time value of money or investment duration. It's best used for simple comparisons of similar investments.

Q4: How does ROI differ from ROE?
A: ROI measures return on total investment, while ROE (Return on Equity) measures return relative to shareholders' equity.

Q5: Should I always choose the highest ROI?
A: Not necessarily. Consider other factors like risk, time horizon, and opportunity cost before making investment decisions.