Return on Investment can be calculated for a number of things.
It is not just businesses but even investors who are able to use the formula to identify whether an investment is going to result in benefits or not.
It also helps people make the most appropriate choice from a range of options available.
Any investor requires Return of Investment to be calculated in order to evaluate his investments.
Everything from the stock a person owns to a collectible requires knowledge of the Return on Investment to help the person make informed decisions regarding his investments.
The main formula for ROI is always the same, but with other factors in play, the formula may be modified to show the return on a particular investment more effectively.
It is important to consider these factors for an accurate information regarding the return on an investment.
Simple Method
The basic formula:
There is nothing simpler than ROI when we discuss it as a formula.
To find out the returns on an investment you begin by taking the gains on the investment and the cost incurred and then divide it by the total cost of the investment.
This will give you the following formula:
ROI = (Gains-Cost) / Cost
To understand this better, consider the following example:
A boy buy 50 candies at a $1 each and then sells them for $1.25 each.
This means that his investment cost was $50 and the total gains was $62.5.
So the returns on the investment was:
ROI = (62.5-50) / 50
Which comes to 0.25 or 25%
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