How To Calculate Return On Investment

How To Calculate Return On Investment

Measure Business Profitability with's ROI Calculator offers a user-friendly ROI Calculator that enables you to easily determine the return on investment for your business ventures. With our advanced tool, you can swiftly calculate the profitability ratio and assess the percentage of profits relative to the initial cost. Experience the convenience and accuracy of for all your ROI calculations. ROI is calculated by subtracting the initial cost of the Investment from its final value, then dividing this new number by the Investment's cost and multiplying it by 100. It is used in a wide range to measure the profitability of stock shares, to decide whether to purchase a business or to evaluate the success of a real estate transaction.

ROI versatility and simplicity. It can be used as a gauge of investment profitability. The calculations are simple because they are easy to interpret for many applications.

You can Calculate ROI by dividing the profit earned on an investment by the cost of that Investment. Example: an investment with a profit of $100 and a cost of $100, having an ROI of 1. ROI needs to reflect the time value of money because some investments will take longer to generate a profit than others.

The Formula for Return on Investment is:

ROI = Current Value of Investment – Cost of Investment / Cost of Investment

You can also make a few more calculations using ROI are:

  • Compound annual growth rate (CAGR)
  • Internal rate of return (IRR)

CAGR measures your Investment's potential growth rate year over year. It assumes an average growth rate and a reinvestment of funds at the end of each term.

IRR is a complicated equation that accounts for detailed cash inflows throughout an investment.

ROI can be calculated using different methods depending on the versions used for calculations are classified as follows:

  • Net Income ROI
  • Capital Gain ROI
  • Total Return
  • Annualized Return

Net Income Method

ROI Formula = (Net Income / Investment cost) * 100

Capital Gain Method

ROI Formula = (Current Share Price – Original Share Price) * 100 / Original Share Price

Total Return Method

ROI Formula = (Current Share Price + Total Dividends Received – Original Share Price) * 100 / Original Share Price

Annualized ROI Method

ROI Formula = [(Ending Value/Beginning Value) ^ (1 / no. of years)] – 1

Advantages of ROI

The best Return on Investment indicates a better investment or business that allows individuals and businesses to identify areas where they should not invest or spend. Some advantages are as follows:

  • It made the calculation simple
  • Easy readability and understanding
  • It helps to compare the efficiency of firms and investments
  • A common method of calculating returns
  • Enables effective decision-making

Our ROI Calculator provides versatility and simplicity, allowing you to gauge investment profitability and make effective decisions for your business or personal finances

What's Your Reaction?