What is Return on Investment (ROI)?
Return on investment is a measure of how much money you’re getting back from an investment relative to how much you put in.
It’s a way of evaluating the efficiency of your investments, and it’s a key performance indicator for businesses.
ROI can be calculated for any type of investment, whether it’s money invested in a business, stocks, real estate, or personal investment in education or a new car.
It’s a way of measuring the profitability of an investment.
How to Calculate Return on Investment
ROI is calculated by taking the gain from an investment, subtracting the cost of the investment, and then dividing the result by the cost of the investment.
The result is expressed as a percentage.
For example, if you put $10,000 into a stock and it increases in value to $12,000, you’ve earned a profit of $2,000.
Subtract the cost of the investment (the $10,000) from the gain ($2,000) and divide the result ($2,000) by the cost of the investment ($10,000) and you get 0.2, or 20%. That’s your return on investment.
Types of Return on Investment
There are two types of ROI: simple ROI and total ROI.
Simple ROI
Simple ROI is the most basic calculation and is the one described above. It does not consider any other factors, such as taxes, inflation, or the time value of money.
Total ROI
Total ROI takes into account all of the factors mentioned above and is a more accurate representation of the return on investment.
Benefits of ROI
ROI is an essential metric for businesses and investors to consider, as it can help them make smarter decisions about where to invest their money.
It is also used to compare different investments and determine which one is the most profitable.
In addition to helping businesses and investors make better decisions, ROI can also be used to measure the success of an investment strategy. It’s a good way to gauge whether a strategy is working or not.
