1. What is ROI?

ROI (Return on Investment) is a financial metric used to evaluate the efficiency of an investment. It compares the magnitude and timing of gains from an investment directly to the amount invested.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

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

Explanation: The formula calculates what percentage return you've made on your original investment.

3. Importance of ROI Calculation

Details: ROI helps investors compare the efficiency of different investments and make informed decisions about where to allocate resources.

4. Using the Calculator

Tips: Enter both gain and cost in dollars. 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: This depends on the industry and risk, but generally an ROI above 10% is considered good for most investments.

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 or the duration of the investment. It's best used for simple comparisons.

Q4: How is ROI different from profit?
A: Profit measures absolute dollar amounts, while ROI measures percentage return relative to the investment cost.

Q5: Should ROI be annualized?
A: For investments of different durations, annualizing ROI makes comparisons more meaningful.