1. What is Return on Investment (ROI)?

Return on Investment (ROI) is a financial metric used to measure the probability of gaining a return from an investment. It is a ratio that compares the gain or loss from an investment relative to its cost.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( Gain \) — The amount of money earned from the investment (USD)
• \( Cost \) — The initial amount invested (USD)

Explanation: The formula calculates what percentage of the original investment was gained (or lost) as profit.

3. Importance of ROI Calculation

Details: ROI helps investors evaluate the efficiency of an investment or compare the efficiency of several different investments. It's crucial for making informed business and financial decisions.

4. Using the Calculator

Tips: Enter the total gain (return) and total cost (investment) in USD. The cost must be greater than zero for the calculation to be valid.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: A good ROI depends on the investment type and risk. Generally, 7-10% is considered good for stock investments, while higher percentages might be expected for riskier investments.

Q2: Can ROI be negative?
A: Yes, a negative ROI indicates a net loss on the investment.

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

Q4: Does ROI consider the time value of money?
A: Basic ROI doesn't account for time. For time-sensitive calculations, consider using Annualized ROI or IRR (Internal Rate of Return).

Q5: How is ROI used in business decisions?
A: Businesses use ROI to compare investment options, evaluate past investments, and make decisions about future expenditures.