Return on Investment (ROI) is a fundamental performance metric used to evaluate the efficiency or profitability of an investment. It's a simple yet powerful way to compare the gains or losses from an investment relative to its cost. In essence, ROI tells you how much money you've made or lost on your initial outlay.
The ROI Formula
The basic formula for calculating ROI is:
ROI = [(Current Value of Investment – Total Investment Cost) / Total Investment Cost] * 100%
In this calculator, we've expanded this slightly to account for common scenarios:
Total Investment Cost: This includes your initial outlay plus any subsequent costs or additional investments made over time.
Net Profit/Gain: This is calculated as (Current Value or Sale Price + Income Generated) – Total Investment Cost.
Therefore, the formula used in this calculator is:
Net Profit = (Current Value + Income Generated) – (Investment Cost + Additional Investment)
A positive ROI indicates that the investment has generated profits, while a negative ROI signifies a loss.
Why Use an ROI Calculator?
Investment Analysis: Determine if a particular investment is worth pursuing by comparing its potential ROI to other opportunities.
Performance Tracking: Monitor the performance of existing investments over time to gauge their success.
Decision Making: Helps in making informed decisions about buying, selling, or holding assets.
Comparison: Allows for easy comparison between different types of investments (e.g., stocks vs. real estate vs. bonds).
Interpreting ROI
Positive ROI: Indicates a profitable investment. The higher the percentage, the greater the return relative to the cost.
Negative ROI: Indicates a loss. The investment cost more than it yielded.
ROI of 0%: The investment broke even.
Example Scenario
Let's say you invested $10,000 in a stock (Initial Investment Cost). Over two years, you reinvested dividends totaling $500 (Additional Investment). During that time, the stock generated $1,200 in income (like dividends not reinvested, or other direct income). You then decide to sell the stock for $15,000 (Current Value).
This means for every dollar invested, you gained approximately 54.29 cents.
function calculateROI() {
var investmentCostInput = document.getElementById("investmentCost");
var currentValueInput = document.getElementById("currentValue");
var additionalInvestmentInput = document.getElementById("additionalInvestment");
var incomeGeneratedInput = document.getElementById("incomeGenerated");
var resultDiv = document.getElementById("result");
var investmentCost = parseFloat(investmentCostInput.value);
var currentValue = parseFloat(currentValueInput.value);
var additionalInvestment = parseFloat(additionalInvestmentInput.value) || 0; // Default to 0 if empty or invalid
var incomeGenerated = parseFloat(incomeGeneratedInput.value) || 0; // Default to 0 if empty or invalid
if (isNaN(investmentCost) || investmentCost <= 0) {
resultDiv.innerHTML = "Please enter a valid positive total investment cost.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
resultDiv.style.display = "block";
return;
}
if (isNaN(currentValue)) {
resultDiv.innerHTML = "Please enter a valid current value or sale price.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
resultDiv.style.display = "block";
return;
}
if (isNaN(additionalInvestment)) {
resultDiv.innerHTML = "Please enter a valid number for additional investments.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
resultDiv.style.display = "block";
return;
}
if (isNaN(incomeGenerated)) {
resultDiv.innerHTML = "Please enter a valid number for income generated.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
resultDiv.style.display = "block";
return;
}
var totalInvestment = investmentCost + additionalInvestment;
var totalReturn = currentValue + incomeGenerated;
var netProfit = totalReturn – totalInvestment;
if (totalInvestment 0) {
resultText = "Your ROI is: " + roi.toFixed(2) + "% (Profitable)";
backgroundColor = "var(–success-green)";
} else if (roi < 0) {
resultText = "Your ROI is: " + roi.toFixed(2) + "% (Loss)";
backgroundColor = "#dc3545"; // Red for loss
} else {
resultText = "Your ROI is: 0.00% (Break-even)";
backgroundColor = "#ffc107"; // Yellow for break-even
}
resultDiv.innerHTML = resultText;
resultDiv.style.backgroundColor = backgroundColor;
resultDiv.style.display = "block";
}