If you want to know how much your investment is paying off, then Return On Investment (ROI) is the possible guide. With our free online ROI calculator, you can easily calculate your ROI based on your gross revenue and investment cost.
Important information regarding ROI calculation
1. What is ROI?
ROI (Return On Investment) is a well-know metric in finance used for whether or not to undertake an investment. ROI is a ratio between net profit and the cost of investment.
2. How ROI is calculated?
Calculating ROI is very simple with the following formula: ROI = [(Gross profit – Investment) / Investment].
3. Is ROI a good measurement/indicator tool for making investment decisions?
As a decision tool, it is simple to understand. The simplicity of the formula allows users to freely choose variables, e.g., length of the calculation time, whether the overhead cost is included, or which factors are used to calculate income or cost components. To use ROI as an indicator for prioritizing investment projects is risky since usually the ROI figure is not accompanied by an explanation of its make-up.
4. ROI calculation example
Let’s say Peter started a chicken farm and invested a total of 3.5 million USD in one year. During this period, the total cost was USD 2 million. Using the formula above, the ROI will be 75 per cent which sees to be a good one.
5. How do we interpret ROI?
The bigger the better the investment and the smaller (even minus value) the more to be avoided or got rid of. If your ROI is zero per cent, it means there is no profit.