1. What is Return on Investment (ROI)?

ROI is a performance measure used to evaluate the efficiency or profitability of an investment. It compares the magnitude and timing of gains from investment directly to the magnitude and timing of investment costs.

2. How Does the ROI Calculator Work?

The calculator uses the basic ROI formula:

Where:

• Net Profit — Final value minus initial investment (USD)
• Investment Amount — Total amount invested (USD)

Explanation: The formula calculates what percentage of the original investment you've gained (or lost) as profit.

3. Importance of ROI Calculation

Details: ROI helps investors compare the efficiency of different investments. A positive ROI means the investment yields profits, while negative ROI indicates a loss.

4. Using the Calculator

Tips: Enter net profit (total returns minus investment amount) and original investment amount in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: Generally, an ROI of 7-10% is considered good for stock investments, but this varies by industry and risk level.

Q2: Can ROI be negative?
A: Yes, negative ROI means the investment resulted in a net loss.

Q3: What are limitations of ROI?
A: ROI doesn't account for the time value of money or the holding period of an investment.

Q4: How is ROI different from ROIC?
A: Return on Invested Capital (ROIC) measures how well a company uses its capital to generate profits, while ROI measures return on a specific investment.

Q5: Should I use ROI for short-term investments?
A: For short-term investments, annualized ROI might be more meaningful to compare with other opportunities.