1. What is Return On Investment (ROI)?

Return On Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It compares the magnitude and timing of gains from investment directly to the magnitude and timing of investment costs.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• Estimated Profit — The expected profit from the investment in dollars
• Investment — The total amount invested in dollars

Explanation: ROI expresses the return as a percentage of the original investment, making it easy to compare the efficiency of different investments.

3. Importance of ROI Calculation

Details: ROI is a crucial metric for business decision-making, investment analysis, and performance evaluation. It helps investors and businesses determine which investments are most profitable and make informed financial decisions.

4. Using the Calculator

Tips: Enter the estimated profit in dollars, investment amount in dollars. Both values must be valid (investment > 0, estimated profit ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: A good ROI depends on the industry and risk level. Generally, ROI above 10-15% is considered good, but this varies significantly by sector and investment type.

Q2: Can ROI be negative?
A: Yes, ROI can be negative if the investment results in a loss rather than a profit. This indicates that the investment lost money.

Q3: What are the limitations of ROI?
A: ROI doesn't account for the time value of money, investment duration, or risk factors. It should be used alongside other financial metrics for comprehensive analysis.

Q4: How is ROI different from ROE?
A: ROI measures return on total investment, while ROE (Return on Equity) measures return specifically on shareholders' equity.

Q5: Should ROI be annualized?
A: For investments of different durations, annualizing ROI allows for better comparison by showing the return per year.