1. What Is Return On Investment (ROI)?

ROI (Return On Investment) is a financial metric used to measure the probability of gaining a return from an investment. It compares the magnitude and timing of gains from investment directly to the magnitude and timing of investment costs.

2. How Does The Calculator Work?

The calculator uses the ROI equation:

Where:

• \( Gain \) — The amount of money earned from the investment
• \( Cost \) — The initial amount invested

Explanation: ROI is expressed as a percentage and can be used to compare the efficiency of different investments.

3. Importance Of ROI Calculation

Details: ROI helps investors determine which investment opportunities are most profitable and worth pursuing. It's a key metric for financial decision-making.

4. Using The Calculator

Tips: Enter the gain and cost amounts in any currency. The cost must be greater than zero for the calculation to work.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: A good ROI depends on the industry and risk level, but generally an ROI of 5-10% is considered good for most investments.

Q2: Can ROI be negative?
A: Yes, a negative ROI means the investment resulted in a net loss.

Q3: What are the limitations of ROI?
A: ROI doesn't account for the time value of money or the holding period of an investment.

Q4: How is ROI different from ROE?
A: ROI measures return on any investment, while ROE (Return On Equity) specifically measures return on shareholders' equity.

Q5: Should I use ROI for short-term investments?
A: ROI can be used for any time period, but for short-term investments, annualizing the ROI may provide better comparison.