**What is Return On Investment (ROI)**

**is. In relation to the investment's cost, ROI seeks to precisely quantify the return on a given investment.**

*may be used to compare the effectiveness of several different investments or assess how profitable or efficient an investment***, also known as return. A**

*cost by its benefit***the outcome.**

*ratio or a percentage is used to indicate***KEY KNOWLEDGE**

**by the original outlay or cost.**

*computed as a percentage by dividing the net return (or loss) on an investment***.**

*divided by the investment's cost to determine ROI. Either a percentage or a ratio is used to convey the outcome***How to Calculate Return On Investment**

**, making it possible to compare different investment kinds to one another.**

*"current value of the investment." ROI may be easily compared with returns from other investments since it is expressed as a percentage***Example of Return On Investment Calculation:**

*which is valued at $500,000. Two years later, the investor sells the property for $1,000,000.***ROI = (1,000,000 – 500,000) / (500,000) = 1 or 100%**

**Use of Return On Investment Calculations:**

**. The computation may also serve as a**

*accept or reject an investment opportunity***. A**

*barometer for the current performance of an investment***.**

*positive or negative return on investment (ROI) can provide valuable insight into the investment's worth for the investor***. Investors and portfolio managers might try to**

*assets by using a ROI calculation***.**

*maximize their investments with this method***Benefits of ROI Formula:**

**Simple and Easy to Calculate:**

**. The benefit and the cost are the only two numbers that are needed. Since there is no set definition for what constitutes a "return," the ROI formula may be used with ease, even if it might mean various things to different individuals.**

*statistic***Universally Understood:**

**pretty much count on others**understanding you when you bring up the measure in discussion.

**Limitation of Return On Investment:**

**Disregards the Factor of Time:**

**. But although the**

*ROI of 50% is the same for two investments***. The larger picture was obscured by the equal return on investment for both, but the investor could clearly tell which choice was preferable when time was taken into account.**

*second investment takes five years to generate the same amount, the first investment is finished in three***ROI Formula is Susceptible to Manipulation:**

**.**

*expenses such property taxes, maintenance charges, sales commissions, stamp duty, and legal fees***Annualised Return On Investment Formula:**

**return on investment statistic is that time periods are not taken into consideration**. A

**, for instance, may be stated in the same way as a 25% return over five days. Of all, a 25% return in 5 days is still better than a 25% return in 5 years!**

*25% return over five years***ROI Formula = [(Ending Value / Beginning Value) ^ (1 / # of Years)] – 1**

**Frequently Asked Question**

Various factors can affect ROI. These include the amount ** invested, the rate of return, the length of time that an investment is held, taxes and fees, inflation, and market volatility**. Businesses should consider all these factors when calculating and measuring their ROI.

Whereas if a company ineffectively ** utilizes an investment and produces losses, ROI will be low**. For investors, choosing a company with a

**.**

*good return on investment is important because a high ROI means that the firm is successful at using the investment to generate high returns*According to conventional wisdom, an ** annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks**. The average

**since the year 1999.**

*annual return of the Nifty 50 Index is about 14.2% CAGR*An efficient marketing campaign may result in a cost ratio of 5:1—that is, $5 generated for every $1 spent, with a simple marketing ROI of 400%. An excellent campaign might see a cost ratio of $10 generated for every dollar spent (10:1) with a simple marketing ROI of 900%.

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