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 different investments. It measures the amount of return on an investment relative to the investment's 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: ROI is expressed as a percentage and can be used to compare different investment opportunities.

3. Importance of ROI Calculation

Details: ROI helps businesses and investors determine which investments are most profitable and make informed decisions about where to allocate resources.

4. Using the Calculator

Tips: Enter the gain and cost in pounds sterling (£). 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 varies by industry and investment type. Generally, an ROI above 10% is considered good for most investments.

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

Q3: What are the limitations of ROI?
A: ROI doesn't account for the time value of money or the duration of the investment. It's best used for comparing investments of similar duration.

Q4: How is ROI different from profit?
A: Profit measures absolute money gained, while ROI measures the efficiency of the investment relative to its cost.

Q5: Should I use ROI for long-term investments?
A: For long-term investments, consider using metrics that account for the time value of money, such as NPV or IRR, in addition to ROI.