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 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 different investment opportunities.

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 business decisions and financial analysis.

4. Using the Calculator

Tips: Enter the gain and cost amounts in dollars. The cost must be greater than zero for the calculation to be valid.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: A good ROI depends on the investment type and risk. Generally, an ROI of 7-10% is considered good for stock market investments.

Q2: Can ROI be negative?
A: Yes, a negative ROI indicates a net loss on the investment.

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 use ROI for long-term investments?
A: For long-term investments, metrics like IRR (Internal Rate of Return) might be more appropriate as they consider the time value of money.