1. What is Return On Investment (ROI)?

Return On Investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment. It compares the magnitude and timing of gains from an investment directly to the amount invested.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( Expected\ Gain \) — The amount of money expected to be gained from the investment ($)
• \( Cost \) — The initial amount invested ($)

Explanation: The formula calculates what percentage return you can expect on your investment. A positive ROI means gains exceed costs, while negative ROI indicates a loss.

3. Importance of ROI Calculation

Details: ROI helps investors compare the efficiency of different investments. It's crucial for business decisions, marketing campaigns, stock investments, and any scenario where resources are allocated with expectation of future benefits.

4. Using the Calculator

Tips: Enter the expected gain and cost in dollars. Both values must be positive numbers, and cost must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: This depends on the industry and risk. Generally, ROI above 10-15% is considered good for most investments.

Q2: Can ROI be more than 100%?
A: Yes, ROI can exceed 100% when the gain is more than double the initial investment.

Q3: What are limitations of ROI?
A: ROI doesn't account for the time value of money or the risk involved. It's best used with other metrics for comprehensive analysis.

Q4: How is ROI different from profit?
A: Profit measures absolute dollar amount gained, while ROI shows the percentage return relative to the investment cost.

Q5: Should I consider time period in ROI?
A: For better comparison, annualize ROI when investments have different time horizons.