How to Calculate Return on Investment (ROI)
Return on investment (ROI) is a measure used to evaluate the efficiency of an investment. It is calculated by dividing the gain from an investment by the cost of the investment. This calculation will give you a percentage that indicates the rate of return on an investment. ROI is a useful tool for measuring the profitability of investments and can be used to compare different investments. For example, if you are considering investing in two stocks, you can use ROI to determine which one is the better option.
Calculating ROI
Calculating ROI is relatively simple. The formula is: ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
Examples of Return on Investment
Here are some examples of how ROI can be used:
- Investing in stocks: If you invest $1000 in a stock and its value increases to $1200, your ROI is 20%.
- Real estate investment: If you purchase a property for $100,000 and sell it for $150,000, your ROI is 50%.
- Business investment: If you invest $10,000 in a business and it generates $25,000 in revenue, your ROI is 150%.
Conclusion
Return on investment (ROI) is a useful tool for measuring the profitability of investments. It is calculated by dividing the gain from an investment by the cost of the investment. ROI can be used to compare different investments and to determine which one is the better option. For more information, please visit Investopedia’s Return on Investment (ROI) page.