1. What is ROI?

Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It compares the magnitude and timing of gains from investment directly to the amount invested.

2. How ROI is Calculated

The ROI formula is:

Where:

• \( Gain \) — The amount of money earned from the investment
• \( Cost \) — The initial amount invested

Explanation: ROI expresses the percentage return relative to the investment cost. A positive ROI means gains exceed costs, while negative ROI indicates a loss.

3. Importance of ROI Calculation

Details: ROI helps investors compare the efficiency of different investments and make informed decisions about where to allocate resources for maximum return.

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: Generally, an ROI of 7-10% is considered good for stock investments, but this varies by industry and risk tolerance.

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

Q3: What are 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 ROI be annualized?
A: For accurate comparisons between investments with different time periods, annualized ROI is recommended.