1. What is ROI?

ROI (Return on Investment) is a financial metric used to measure the probability of gaining a return from an investment. It compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Profit} \) — Final value minus initial investment (USD)
• \( \text{Investment} \) — Total amount invested (USD)

Explanation: The formula calculates what percentage return you've made on your investment.

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 key metric for financial decision-making.

4. Using the Calculator

Tips: Enter net profit and investment amounts in USD. 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 depends on the investment type, risk, and time horizon. Generally, 7-10% is considered good for stock market investments.

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

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 IRR.

Q4: What are limitations of ROI?
A: ROI doesn't consider risk, time period, or opportunity costs. It should be used alongside other metrics.

Q5: How is ROI different from ROE?
A: ROI measures return on total investment, while ROE (Return on Equity) measures return only on shareholders' equity.