1. What is ROI Percentage?

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:

• \( \text{Net Return} \) — The amount gained from the investment (USD)
• \( \text{Cost} \) — The initial investment amount (USD)

Explanation: The formula calculates what percentage of the original investment was returned 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 a crucial metric in business decision-making.

4. Using the Calculator

Tips: Enter the net return and cost in USD. Both values must be positive numbers, and cost must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: A good ROI depends on the investment type and risk. Generally, an ROI of 7-10% is considered good for stock investments, while higher-risk investments may require higher ROI.

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

Q3: Does ROI consider the time value of money?
A: No, basic ROI doesn't account for the time period. For time-adjusted returns, consider using annualized ROI or other metrics like IRR.

Q4: What are the limitations of ROI?
A: ROI doesn't consider investment duration, risk, or opportunity cost. It's best used alongside other financial metrics.

Q5: How is ROI different from profit margin?
A: ROI measures return relative to investment cost, while profit margin measures profitability relative to revenue.