1. What is ROI?

ROI (Return on Investment) 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:

• \( Profit \) — Net profit from the investment ($)
• \( Investment \) — Total amount invested ($)

Explanation: The formula calculates the percentage return on an investment by dividing the profit by the investment amount and multiplying by 100.

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 profit and investment amounts in dollars. Both values must be positive numbers, and investment must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: A good ROI varies by industry and investment type, but generally, a positive ROI indicates a profitable investment. Higher percentages are better.

Q2: Can ROI be negative?
A: Yes, a negative ROI indicates that the investment resulted in a loss rather than a profit.

Q3: What's the difference between ROI and ROE?
A: ROI measures return on total investment, while ROE (Return on Equity) measures return on shareholder equity specifically.

Q4: Are there limitations to ROI calculation?
A: ROI doesn't account for the time value of money or the duration of the investment. It's best used for comparing investments of similar duration.

Q5: How is annualized ROI calculated?
A: Annualized ROI adjusts for the investment period: [(1 + ROI)^(1/n)] - 1, where n is the number of years.