1. What is ROI?

ROI (Return on Investment) is a financial metric used to evaluate the efficiency or profitability of an investment. It measures the return relative to the cost of the investment.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Profit} \) — Total revenue minus total costs
• \( \text{Cost} \) — Total investment cost
• \( ROI \) — Return on Investment expressed as percentage

Explanation: ROI calculates the percentage return on an investment relative to its cost, providing a standardized way to compare different investments.

3. Importance of ROI Calculation

Details: ROI is crucial for investment decision-making, business planning, and performance evaluation. It helps investors and businesses determine which investments are most profitable and make informed financial decisions.

4. Using the Calculator

Tips: Enter net profit and cost in any currency (ensure both values use the same currency). Net profit should be positive for profitable investments and negative for losses. Cost must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good ROI?
A: A good ROI depends on the industry and risk level. Generally, ROI above 10-15% is considered good, but this varies by sector and investment type.

Q2: Can ROI be negative?
A: Yes, negative ROI indicates a loss on the investment where costs exceed returns.

Q3: What's the difference between ROI and ROE?
A: ROI measures return on total investment, while ROE (Return on Equity) measures return specifically on shareholders' equity.

Q4: Are there limitations to ROI?
A: Yes, ROI doesn't account for the time value of money, risk factors, or the duration of the investment. It should be used alongside other financial metrics.

Q5: How is ROI used in business decisions?
A: Businesses use ROI to compare investment opportunities, evaluate project profitability, allocate resources, and measure marketing campaign effectiveness.