Compound Rate Interest Calculator

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Investment ROI Calculator

Calculate the Return on Investment (ROI) for your investment. ROI is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments.

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Understanding Return on Investment (ROI)

Return on Investment (ROI) is a fundamental metric used by investors and businesses to gauge the profitability of an investment relative to its cost. It's expressed as a percentage and helps in comparing the efficiency of different investment opportunities.

How ROI is Calculated

The basic formula for ROI is:

ROI = [(Current Value of Investment – Cost of Investment) + Income Generated – Additional Investment Costs] / (Cost of Investment + Additional Investment Costs) * 100

  • Cost of Investment: This is the initial amount of money you spent to acquire the asset or start the investment.
  • Current Value of Investment: This represents the present market value of your investment. If you've sold the investment, this would be the selling price.
  • Income Generated: This includes any profits, dividends, interest, or rent received from the investment over its holding period.
  • Additional Investment Costs: These are any extra expenses incurred after the initial purchase, such as maintenance, repairs, or fees, that are directly tied to the investment itself.

A positive ROI indicates that the investment has generated profits, while a negative ROI suggests a loss.

Why ROI is Important

ROI is crucial for several reasons:

  • Performance Measurement: It provides a clear and concise measure of how well an investment is performing.
  • Decision Making: Investors use ROI to decide whether to proceed with an investment, hold onto it, or divest.
  • Comparison Tool: ROI allows for a standardized comparison between vastly different types of investments, from stocks and bonds to real estate and business ventures.
  • Efficiency Assessment: It helps in understanding how efficiently capital is being utilized.

Example Calculation

Let's consider an example. Suppose you invested $10,000 in a stock (Initial Investment). Over the next year, you received $500 in dividends (Income Generated) and you also incurred $200 in brokerage fees (Additional Investment Costs). At the end of the year, the stock's value has increased to $12,000 (Current Value).

  • Initial Investment Cost: $10,000
  • Current Value / Selling Price: $12,000
  • Income Generated: $500
  • Additional Investment Costs: $200

Using the calculator:

  • Net Profit = ($12,000 – $10,000) + $500 – $200 = $2,000 + $500 – $200 = $2,300
  • Total Investment = $10,000 + $200 = $10,200
  • ROI = ($2,300 / $10,200) * 100 ≈ 22.55%

This means your investment generated a return of approximately 22.55% relative to the total capital invested.

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