Definition of ROI
ROI stands for Return on Investment, a ratio between the net gain and the net cost of an investment. Expressed as a percentage, ROI helps compare the profitability of different investments. For example, an ROI of 0.1 is reported as 10%.

Importance of ROI
ROI is a crucial measure in finance, often used alongside other profitability metrics like NPV, IRR, and payback period. Its simplicity and ease of calculation make it a popular tool for assessing investment efficiency and comparing multiple investments.

ROI Formula
To calculate ROI, you need:
G: Gain from investment
C: Cost of investment
The formula is:
ROI=(G−C) C

ROI Calculator
For complex numbers or larger amounts, using an ROI calculator is beneficial. Simply input the invested and returned amounts to quickly determine the ROI. This tool is ideal for
business owners and investors.

Advantages of ROI
1. Simple and easy to calculate.
2. Results are easy to interpret and compare.
3. Requires only two figures: gain and cost of investment.

Disadvantages of ROI
1. Does not account for the time value of money.
2. Can be manipulated based on how gains and costs are measured.
3. Comparisons are valid only if gains and costs are directly related to the investment.

FAQs
How to Calculate ROI Percentage?
1. Find initial and final investment values.
2. Subtract the initial value from the final value.
3. Divide the result by the initial value and multiply by 100.
Calculating ROI on Real Estate:
1. Subtract purchase price from selling price.
2. Divide the result by the purchase price.
3. Multiply by 100.
Example Calculation: For a net gain of $1200 and an investment cost of $2000:
ROI=1200/2000=0.6 or 60%
What Does 30% ROI Mean? A 30% ROI indicates a 30% profit from the investment. For a
$100 investment, the return is $130, with a $30 profit.