1. What is Return on Investment (ROI)?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment. It measures the return relative to the investment's cost and is 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
• \( \text{Cost of Investment} \) — Total cost of the investment

Explanation: The formula calculates what percentage return you've earned on your investment relative to its original cost.

3. Importance of ROI Calculation

Details: ROI is crucial for comparing different investment opportunities, assessing business performance, and making informed financial decisions. It helps investors determine which investments are most profitable.

4. Using the Calculator

Tips: Enter net profit and cost of investment in the same currency units. Both values must be positive numbers, with cost of investment greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: A good ROI depends on the industry and risk level. Generally, ROI above 10-15% is considered good, but this varies by investment type and market conditions.

Q2: Can ROI be negative?
A: Yes, if the net profit is negative (you lost money), ROI will be negative, indicating a loss on the investment.

Q3: What's the difference between ROI and ROE?
A: ROI measures return on total investment, while ROE (Return on Equity) measures return specifically on shareholders' equity.

Q4: Does ROI consider the time value of money?
A: Basic ROI calculation does not account for the time value of money. For longer-term investments, consider using annualized ROI or other metrics like IRR.

Q5: How can I improve my ROI?
A: You can improve ROI by increasing profits, reducing investment costs, optimizing operations, or reallocating resources to more profitable ventures.