1. What Is ROI And How Is It Calculated?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment. It compares the gain from an investment relative to its 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: The formula calculates what percentage return you've made on your original investment.

3. Importance of ROI Calculation

Details: ROI helps investors compare the efficiency of different investments and make informed financial decisions. It's widely used in business to evaluate projects, marketing campaigns, and capital expenditures.

4. Using the Calculator

Tips: Enter the total gain from your investment and the original cost. Both values should be in the same currency. Cost must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: This depends on the investment type and risk. Generally, 7-10% is considered good for stock market investments, while higher-risk investments may aim for 15%+.

Q2: Can ROI be negative?
A: Yes, a negative ROI means the investment lost money (gain was less than cost).

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 to compare investments of similar duration.

Q4: How is ROI different from profit?
A: Profit is an absolute dollar amount, while ROI shows the percentage return relative to the investment cost.

Q5: Should I use ROI for all investment decisions?
A: While useful, ROI should be considered alongside other metrics like risk, time horizon, and opportunity cost.