Rate of Return Calculation Example

Rate of Return (RoR) Calculator

Calculation Summary

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Understanding the Rate of Return Calculation

The Rate of Return (RoR) is a critical financial metric used to measure the profit or loss of an investment over a specific period. It is expressed as a percentage of the investment's initial cost. Whether you are trading stocks, buying real estate, or investing in a business, knowing how to calculate your return is essential for evaluating performance.

The Rate of Return Formula

To find the rate of return, you need three primary numbers: the initial value of the asset, the ending value of the asset, and any interim income (like dividends or interest). The mathematical formula is:

RoR = [(Current Value – Initial Value + Income) / Initial Value] x 100

Rate of Return Calculation Example

Let's look at a realistic scenario to see how this works in practice:

• Initial Investment: You buy 100 shares of a company at 50 per share (Total: 5,000).
• Current Value: One year later, the shares are worth 55 each (Total: 5,500).
• Income: During the year, the company paid you 200 in total dividends.

Step-by-Step Logic:

1. Calculate the Capital Gain: 5,500 – 5,000 = 500.
2. Add the Income: 500 + 200 = 700 (This is your Total Gain).
3. Divide by Initial Cost: 700 / 5,000 = 0.14.
4. Convert to Percentage: 0.14 x 100 = 14% Rate of Return.

Why Calculating RoR Matters

Without calculating the rate of return, it is impossible to compare different investment opportunities objectively. For example, a 500 gain on a 1,000 investment (50% return) is much more efficient than a 500 gain on a 10,000 investment (5% return). Using the calculator above helps you quickly identify which assets in your portfolio are working hardest for your money.

function calculateRoR() { var initial = parseFloat(document.getElementById('initialInvestment').value); var current = parseFloat(document.getElementById('currentValue').value); var income = parseFloat(document.getElementById('incomeReceived').value); // Default income to 0 if empty if (isNaN(income)) { income = 0; } var resultDiv = document.getElementById('rorResult'); var percentageBox = document.getElementById('percentageBox'); var profitBox = document.getElementById('totalProfitBox'); if (isNaN(initial) || isNaN(current) || initial = 0) { resultDiv.style.backgroundColor = '#e8f5e9'; percentageBox.style.color = '#2e7d32'; percentageBox.innerHTML = '+' + rorPercentage.toFixed(2) + '%'; profitBox.innerHTML = 'Total Net Gain: ' + totalGain.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); } else { resultDiv.style.backgroundColor = '#ffebee'; percentageBox.style.color = '#c62828'; percentageBox.innerHTML = rorPercentage.toFixed(2) + '%'; profitBox.innerHTML = 'Total Net Loss: ' + totalGain.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); } }