1. What is ROI?

ROI (Return on Investment) 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 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: The formula calculates the percentage return relative to the original investment. A positive ROI means gains exceed costs, while a negative ROI indicates a loss.

3. Importance of ROI Calculation

Details: ROI helps investors and businesses evaluate the profitability of investments, compare different investment opportunities, and make informed financial decisions.

4. Using the Calculator

Tips: Enter the total gain (return) and the initial cost (investment) in dollars. 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 real estate might aim for 10-15%.

Q2: Can ROI be negative?
A: Yes, a negative ROI means the investment resulted in a net loss (costs exceeded gains).

Q3: Does ROI consider the time factor?
A: The basic ROI formula doesn't account for time. For time-sensitive comparisons, annualized ROI or other metrics may be more appropriate.

Q4: What are the limitations of ROI?
A: ROI doesn't consider risk, time value of money, or opportunity costs. It's best used alongside other financial metrics.

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