1. What is Return on Investment (ROI)?

Return on Investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment. It compares the gain or loss from an investment relative to its cost.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( A \) — Final amount (currency)
• \( P \) — Principal amount (currency)

Explanation: The formula calculates the percentage return by comparing the net profit (A - P) to the original investment amount (P).

3. Importance of ROI Calculation

Details: ROI is a crucial metric for investment decision-making, allowing investors to compare different investment opportunities and assess performance.

4. Using the Calculator

Tips: Enter the principal investment amount and final amount in any currency. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI percentage?
A: A good ROI varies by industry and investment type, but generally, a positive ROI indicates a profitable investment.

Q2: Can ROI be negative?
A: Yes, ROI can be negative if the final amount is less than the principal, indicating a loss on the investment.

Q3: Does ROI consider the time value of money?
A: No, basic ROI calculation does not account for the time value of money. For time-adjusted returns, consider using annualized ROI or IRR.

Q4: What are the limitations of ROI?
A: ROI doesn't consider investment duration, risk, or opportunity cost, and can be manipulated by how costs and returns are defined.

Q5: How is ROI different from profit margin?
A: ROI measures return relative to investment cost, while profit margin measures profitability relative to revenue.