# Return on Investment (ROI) Calculator

Calculation Results

Investment Gain: 0

ROI: 0%

Annualized ROI: 0%

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Return on Investment (ROI) is a financial metric used to assess the efficiency of an investment or compare the efficiencies of several different investments.

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.

Formula:
ROI = (Net Profit/Investment Cost​) × 100

Net Profit Calculation:

• Determine the initial investment cost. This includes all expenses associated with the investment.
• Calculate the total return from the investment. This could be revenue, sale proceeds, or any other income generated from the investment.
• Subtract the initial investment cost from the total return to get the net profit.

Applying the ROI Formula:

• Divide the net profit by the initial investment cost.
• Multiply the result by 100 to convert it into a percentage.

Example Calculation:
Suppose you invest \$1,000 in a project, and it generates R1,200 in revenue.

The net profit would be R1,200 – R1,000 = R200.

ROI = (200​/1000) × 100 = 20%

Considerations:

• ROI doesn’t account for the time value of money. For long-term investments, more sophisticated metrics like Net Present Value (NPV) or Internal Rate of Return (IRR) might be more appropriate.
• It’s crucial to include all relevant costs and revenues to get an accurate ROI.
• ROI is a relative metric, useful for comparing different investment opportunities, but it doesn’t provide a complete picture of investment risks or other factors that might affect the return.

Using ROI, investors and business owners can gauge the profitability of their investments, aiding in making informed decisions.

Relying solely on ROI for major financial decisions is not advised due to its limitations.

Other factors like market conditions, investment risks, and alternative opportunities should also be considered.