1. What is ROI?

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

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( Gain \) — The amount of money earned from the investment
• \( Cost \) — The amount of money 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 investors determine which investment opportunities are most profitable, compare investment efficiency, and make informed financial decisions.

4. Using the Calculator

Tips: Enter the total gain and total cost 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, an ROI of 7-10% is considered good for stock market 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 holding period of an investment. It's best used for simple comparisons.

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 only consider ROI when making investments?
A: No, ROI is just one metric. Consider other factors like risk, time horizon, and investment objectives.