1. What is Return on Investment (ROI)?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency and profitability of an investment. It measures the return relative to the cost of the investment, expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( Gain\ from\ Investment \) — Total revenue or value generated from the investment
• \( Cost \) — Total cost of the investment

Explanation: The formula calculates the percentage return by comparing the net profit (gain minus cost) to the original investment cost.

3. Importance of ROI Calculation

Details: ROI is crucial for business decision-making, investment analysis, and comparing the efficiency of different investments. It helps businesses determine which investments are generating the best returns and allocate resources effectively.

4. Using the Calculator

Tips: Enter the total gain from investment and the total cost in dollars. Both values must be positive numbers, and the cost must be greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: A good ROI varies by industry, but generally, an ROI above 10-15% is considered good. However, this depends on the risk level and opportunity cost of the investment.

Q2: Can ROI be negative?
A: Yes, if the gain is less than the cost, ROI will be negative, indicating a loss on the investment.

Q3: What are the limitations of ROI?
A: ROI doesn't account for the time value of money, risk factors, or the duration of the investment. 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 used for all types of investments?
A: ROI is most useful for comparing similar investments. For long-term projects, consider using metrics that account for time value of money like NPV or IRR.