One of the most popular metrics that is most arguable is Return on Investment –ROI. When the ROI is applied correctly, then the analysis of the same becomes a very powerful tool that aids in making information decision. So, in this article, today we shall be looking into the basic aspects of ROI, like what does ROI mean to a common man? How is the calculation done to evaluate ROI? And many more aspects relating to Return of Investment
Return of investment – ROI is considered as a tool to calculate or evaluate the efficiency of an investment or in other words to compare the efficiency of various separate investments. It is to understand that ROI is supposed to be the measuring factors that measures the amount of return of a particular investment in relation to investments cost.
Mathematical formula for ROI calculation
Times when there were no high speed internets and free online calculation tools, the mathematical formulas were used to calculate any sophisticated algorithms. So, here, we shall look into the mathematical formula that is used to calculate the ROI manually,
We can see that, to calculate , ROI the benefit / return of an investment is actually divided by cost of investment, and finally the result is expressed as a percentage or the ratio od same.
Gain from investment – this is obtained from sake of investment of interest, as ROI is calculated as percentage and can be easily be com-pared with return from other investments as it allows you to measure various types of investment against each other.
Online ROI calculator
In the modern era, with the development of technology and with the free online ROI calculator the return on investment helps in calculate annualized rate of return using accurate dates. This is also known as Return of Return – ROR. This calculator also helps to calculate the results of various investments.
Live ROI calculator
You can use this online ROI calculator for free to get the accurate ROI value.
Purpose of ROI use
There are various purposes of ROI calculations not only in returns but also in various other fields, some of them are listed below;
- Helps in evaluating existing systems. Project post – implementation assessment: this enables to make decisions along the process of evaluating existing solutions or projects
- In the factor of performance management in a business unit and to evaluate individual managers in the companies that are decentralized
- This allows as rational for future investment and acquisition decisions: prioritization or justification of projects – this facilitates choice of information on which project to pursue i.e., which solution to implement
Apart from the above mentioned uses and calculation methodology, the ROI holds good for management of small businesses. This calculation and evaluation is normally used by investors in stock market in order to compare the performance of various investment or companies. So finally the ROI calculation holds good for any business and personal investment calculation purpose.