How to Use ROI
Return on investment (ROI) is a financial term used to assess an investment’s effectiveness or to compare the effectiveness of a variety of investments. You can use the following calculation to determine ROI:
ROI is calculated as (Gain from Investment – Cost of Investment) / Investment Cost.
Here is an illustration of how to employ this formula:
- Assume you put $100 into a stock, and a year later, it was worth $120.
- You would first deduct the investment’s cost ($100) from its return ($120) before calculating your ROI: $120 – $100 = $20
- Then, you would split the investment’s gain ($20) by its cost ($100) as follows: $20 / $100 = 0.2
- Finally, to express the ROI as a percentage, multiply the value by 100: 0.2 x 100 = 20%
Your ROI in this case would be 20%. This indicates that a 20% return on your investment was achieved.
ROI can be used to assess a variety of investments, such as stocks, bonds, properties, and companies. It is a crucial indicator to take into account when choosing an investment since it enables you to evaluate the prospective returns of various assets and gauge their potential profitability.
Return on Investment (ROI)
Return on Investment (ROI) is a performance indicator that is used to assess an investment’s effectiveness or to compare the effectiveness of several distinct investments. It is a ratio that assesses an investment’s profit or loss in relation to the capital invested. The cost of an investment is subtracted from the benefit or return of an investment, and the result is divided by the cost of the investment. A percentage or ratio is used to represent the outcome. ROI can be used to evaluate an investment’s performance in absolute terms. It can also be used to compare the effectiveness of various investments.
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