ROI Calculator

1. What is the ROI Calculator?

Definition: The ROI Calculator computes the Return on Investment (ROI), a metric that measures the efficiency or profitability of an investment based on the gain and cost.

Purpose: It helps investors evaluate the performance of investments and make informed decisions by assessing the return relative to the initial cost.

2. How Does the Calculator Work?

The calculator uses the following formula:

$ \text{ROI} = \frac{\text{G} - \text{C}}{\text{C}} $

Where:

$ \text{ROI} $: Return on Investment (%);
$ \text{G} $: Gain from Investment ($);
$ \text{C} $: Cost of Investment ($).

Steps:

Enter the gain from the investment (total revenue or profit).
Enter the cost of the investment (initial amount invested).
Calculate the ROI by subtracting the cost from the gain, dividing by the cost, and multiplying by 100 to get a percentage.
Display the result as a percentage, formatted in scientific notation if the absolute value is less than 0.001, otherwise with 4 decimal places.

3. Importance of ROI Calculation

Calculating ROI is essential for:

Investment Efficiency: Assesses the profitability of an investment relative to its cost.
Decision Making: Helps compare different investment opportunities.
Performance Tracking: Monitors the success of past investments.

4. Using the Calculator

Example: Calculate ROI for an investment with a cost of $10,000 and a gain of $15,000:

$ \text{G} $: $15,000;
$ \text{C} $: $10,000;
$ \text{ROI} $: $ \frac{15,000 - 10,000}{10,000} \times 100 = 50.0000\% $.

5. Frequently Asked Questions (FAQ)

Q: What is a good ROI?
A: A good ROI depends on the industry, but generally, a value above the cost of capital (e.g., 10-15%) is considered positive.

Q: Does ROI account for risk?
A: No, ROI does not consider risk, which is a key limitation; other metrics like Sharpe ratio may be used for risk-adjusted returns.

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