Return on 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. ROI measures the amount of return on a particular investment, relative to the investment's cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed in percentage, indicating how much profit or loss the investment has generated relative to its initial cost.
The basic formula for ROI is:
ROI = ((Final Value of Investment - Initial Investment Cost) / Initial Investment Cost) * 100
In this calculator, we also incorporate the duration of the investment to provide a more annualized perspective, though the primary output is the simple ROI percentage.
Components of the ROI Calculation:
Initial Investment Cost: This is the total amount of money or resources you put into an investment upfront. This could include purchase price, transaction fees, setup costs, etc.
Final Value of Investment: This is the current or eventual worth of your investment. It includes the principal amount plus any gains, profits, or appreciation. If you have sold the investment, it's the net proceeds from the sale.
Investment Duration: This is the length of time the investment was held, typically measured in years for an annualized perspective.
How to Use This Calculator:
Enter the total cost you incurred to acquire the investment under "Initial Investment Cost".
Enter the total current or final worth of your investment under "Final Value of Investment".
Input the duration in years for which you held the investment in "Investment Duration".
Click "Calculate ROI" to see your investment's profitability percentage.
Interpreting the Results:
A positive ROI percentage means the investment generated a profit. A negative ROI percentage indicates a loss. The higher the positive percentage, the more profitable the investment has been relative to its cost. For instance, an ROI of 50% means that for every dollar invested, you earned back your dollar plus an additional 50 cents in profit.
While this calculator focuses on the direct ROI percentage, understanding the investment duration is crucial for comparing investments with different time horizons. An investment with a high ROI over a short period might be more attractive than one with a similar ROI over a much longer period.
Example:
Let's say you invested $10,000 (Initial Investment Cost) in a stock. After 3 years, the stock's value has grown to $18,000 (Final Value of Investment).