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 gain from an investment relative to its cost.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( gain \) — The amount gained from the investment ($)
• \( cost \) — The initial cost of the investment ($)

Explanation: The formula calculates the percentage return by dividing the gain by the cost and multiplying by 100 to get a percentage value.

3. Importance of ROI Calculation

Details: ROI is a crucial metric for comparing the efficiency of different investments, making informed financial decisions, and evaluating business performance.

4. Using the Calculator

Tips: Enter the gain amount in dollars, the cost amount in dollars. Both values must be valid (gain ≥ 0, cost > 0).

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: A good ROI varies by industry and investment type. Generally, a positive ROI indicates a profitable investment, with higher percentages being more desirable.

Q2: Can ROI be negative?
A: Yes, ROI can be negative if the investment results in a loss (when gain is less than cost).

Q3: What are the limitations of ROI?
A: ROI doesn't account for the time value of money 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 annualized?
A: For comparing investments of different durations, annualized ROI provides a more accurate comparison by accounting for the time factor.