1. What is ROI?

ROI (Return on Investment) 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 magnitude and timing of investment costs.

2. How Does the Calculator Work?

The calculator uses the basic ROI formula:

Where:

• Net Profit — The gain from the investment (Revenue - Cost)
• Cost — The total 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 businesses evaluate the efficiency of an investment or compare the efficiency of several different investments. It's crucial for making informed business decisions about where to allocate resources.

4. Using the Calculator

Tips: Enter the net profit (revenue minus costs) and the total investment cost in the same currency. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is ROI calculated on revenue or profit?
A: ROI is calculated on net profit (revenue minus costs), not just revenue. This gives a more accurate picture of the actual return.

Q2: What is a good ROI percentage?
A: A good ROI depends on the industry and risk. Generally, an ROI of 5-7% is decent, 10%+ is good, and 20%+ is excellent.

Q3: Can ROI be negative?
A: Yes, a negative ROI means the investment resulted in a net loss rather than a profit.

Q4: What are the limitations of ROI?
A: ROI doesn't account for the time value of money or the risk of the investment. It's best used for simple comparisons.

Q5: How is ROI different from ROE?
A: ROI measures return on any investment, while ROE (Return on Equity) specifically measures return on shareholders' equity.