Understanding Return on Investment (ROI)
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.
The ROI Formula
The calculation is relatively simple and is universally understood in the financial world:
ROI = (Net Profit / Cost of Investment) x 100
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Why is Annualized ROI Important?
A 20% ROI sounds great, but if it took 10 years to achieve, it is actually a poor investment. This is why our calculator also considers the time period to give you a better understanding of your annual efficiency.
Common Use Cases
- Marketing: Calculating the revenue generated from ads vs the ad spend.
- Real Estate: Comparing rental income and appreciation against the property price.
- Stock Market: Measuring the growth of a portfolio.