1. What is ROI?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment. It compares the net profit to the initial investment cost, expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• Net Profit — Total revenue minus total costs ($)
• Investment — Initial amount invested ($)

Explanation: The formula calculates the percentage return on an investment relative to its cost.

3. Importance of ROI Calculation

Details: ROI is crucial for comparing investment opportunities, making informed financial decisions, and evaluating business performance.

4. Using the Calculator

Tips: Enter net profit and investment amounts in dollars. Both values must be positive numbers, with investment 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. Generally, a positive ROI indicates profitability, with higher percentages being more favorable.

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

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 should be used alongside other financial metrics.

Q4: How is ROI different from ROE?
A: ROI measures return on total investment, while ROE (Return on Equity) measures return specifically on shareholders' equity.

Q5: Should ROI be annualized?
A: For comparing investments of different durations, annualizing ROI provides a more accurate comparison.