1. What is ROI Formula?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency and profitability of an investment. It measures the return relative to the cost of the investment, expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Profit} \) — Total profit from the investment in dollars
• \( \text{Cost of Investment} \) — Total cost of the investment in dollars

Explanation: The formula calculates the percentage return on an investment by dividing the net profit by the cost of investment and multiplying by 100 to convert to percentage.

3. Importance of ROI Calculation

Details: ROI is crucial for comparing different investment opportunities, making informed financial decisions, and evaluating the performance of existing investments. It helps investors determine which investments are generating the best returns.

4. Using the Calculator

Tips: Enter the net profit and cost of investment in dollars. Both values must be positive numbers, with cost of investment greater than zero for valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: A good ROI depends on the industry and risk level, but generally, ROI above 10-15% is considered good for most investments.

Q2: Can ROI be negative?
A: Yes, if the net profit is negative (indicating a loss), ROI will be negative, showing that the investment resulted in a loss.

Q3: What are the limitations of ROI?
A: ROI doesn't account for the time value of money, risk factors, or the duration of the investment. It should be used alongside other financial metrics.

Q4: How is net profit calculated?
A: Net profit = Total returns from investment - Cost of investment. It represents the actual profit earned from the investment.

Q5: Can ROI be used for personal investments?
A: Yes, ROI can be used for various personal investments including stocks, real estate, education, and business ventures to assess their profitability.