Calculating the Return on Investment (ROI)

What is ROI?

ROI is a performance measure used to evaluate the profitability of an investment, calculated as a percentage of the initial investment cost.

• Formula to Calculate ROI:
  • ROI = (Current Value of Investment - Cost of Investment) / Cost of Investment * 100
• Steps to Calculate ROI:
  • Determine the Initial Investment: This is the amount you initially put into the investment (e.g., $10,000).
  • Calculate the Final Value: This is the current value of the investment, including any dividends, interest, or capital gains (e.g., $12,000).
  • Apply the Formula: Subtract the initial investment from the final value, then divide by the initial investment, and multiply by 100 to get the ROI percentage.
• Example:
  • Initial investment: $10,000
  • Final value of investment: $12,000
  • ROI: (12,000 – 10,000) / 10,000 * 100 = 20%
• Interpreting Your ROI:
  • Positive ROI: A positive ROI indicates that your investment has grown and is profitable.
  • Negative ROI: A negative ROI suggests a loss on the investment, and you may want to reevaluate your strategy.
  • Use ROI for Comparisons: ROI helps compare different investments, even if they are in different asset classes or sectors.

*Disclaimer: The content in this post is for informational purposes only. The views expressed are those of the author and may not reflect those of any affiliated organizations. No guarantees are made regarding the accuracy or reliability of the information. Use at your own risk.