1. What is Return On Investment (ROI)?

Return On Investment (ROI) is a financial metric used to evaluate the efficiency or profitability 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:

• \( Gain \) — Final value of the investment
• \( Cost \) — Initial cost of the investment

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

3. Importance of ROI Calculation

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

4. Using the Calculator

Tips: Enter the final value (gain) and initial investment (cost) in dollars. The cost must be greater than zero for calculation.

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 market investments.

Q2: Can ROI be negative?
A: Yes, negative ROI means the investment lost money (gain was less than cost).

Q3: Does ROI consider time period?
A: Basic ROI doesn't account for time. For time-adjusted returns, consider annualized ROI or IRR calculations.

Q4: What are limitations of ROI?
A: ROI doesn't account for risk, time value of money, or opportunity cost. It's best used with other metrics.

Q5: How is ROI different from profit?
A: Profit is absolute dollar amount, while ROI shows percentage return relative to investment size.