1. What is Return On Investment (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 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 return you've made on your original investment. A positive ROI means profits, while negative indicates losses.

3. Importance of ROI Calculation

Details: ROI helps investors compare the efficiency of different investments, make informed financial decisions, and evaluate the success of past investments.

4. Using the Calculator

Tips: Enter the total gain (return) and the original cost of investment in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: This varies by industry, but generally an ROI above 10% is considered good, while above 20% is excellent.

Q2: Can ROI be negative?
A: Yes, negative ROI means the investment resulted in a net loss.

Q3: Does ROI consider the time value of money?
A: Basic ROI doesn't account for time. For time-adjusted returns, consider using Annualized ROI or IRR.

Q4: What are limitations of ROI?
A: ROI doesn't consider investment duration, risk, or opportunity cost. It's best used alongside other metrics.

Q5: How is ROI different from profit margin?
A: ROI measures return relative to cost, while profit margin measures profit relative to revenue.