1. What is Return on Investment (ROI)?

Return on Investment (ROI) is a financial metric used to measure the probability of gaining a return from an investment. It compares the magnitude and timing of gains from an investment directly to the amount invested.

2. How Does the ROI Calculator Work?

The calculator uses the ROI formula:

Where:

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

Explanation: ROI is expressed as a percentage and can be used to compare the efficiency of different investments.

3. Importance of ROI Calculation

Details: ROI helps investors evaluate the efficiency of an investment or compare the efficiency of several different investments. It's a key metric for financial decision-making.

4. Using the Calculator

Tips: Enter the total gain from your investment and the initial cost of the investment. Both values must be positive numbers.

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.

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

Q4: How is ROI different from ROE?
A: ROI measures return on any investment, while ROE (Return on Equity) specifically measures return on shareholders' equity.

Q5: Should I consider inflation when calculating ROI?
A: For long-term investments, it's often helpful to calculate real ROI (adjusted for inflation) for more accurate comparisons.