ROI Calculator

ROI calculator enables us to generate expected profit or loss in our investments. Return on Investment (ROI) is the estimation of the common profitability ratio and to decide or pursue an investment or not. It helps to identify the amount of profit or loss in the business against the total invested cost.

Let’s go and learn the importance of the ROI for our business!

Why Do We Need ROI?

Return on investment is an essential calculation in order to evaluate outcomes on investments. And, even now you can compare your investments with other types of investments. ROI plays a key role in deciding the amount of investment a business should receive or not.

In simple terms, ROI is an ideal way to interpret your investments and choose the best kind of the investments. ROI calculator helps managers to recognize what is the best path to follow and which investment does require more investment and where they need to cut down our investments.

This term is most common in businesses as we are dividing the profitability of the investments by the total cost of investments. The result is represented in the form of a ratio which is best to analyze your %age return on your investments.

The formula of ROI:

Investors may be in total disarray if they are not able to find how to calculate ROI. Well, we are to make things easier for your by providing the best ROI (Return on Investment) formula:

The simple formula for ROI is as follows:

ROI= Net return InvestmentsCost of Investments 100%

Alterntive Method:

ROI= {(FVI-IVI)/IVI} 100%

Where:

FVI= Future value investments

IVI= Initial value investments

When we are finding ROI over a period of 12 months, then we call it Annualized ROI, an annualized return calculator automatically able to find ROI over a period of 12 months.

Practical Examples of ROI:

Example 1:

As an investor in the real estate market, you have purchased a Property of $ 600,000 in California and after 2 years you sold the property $ 900,000.

So, how to calculate return on investment here, simply put the values in the ROI calculator and let it proceed with precise calculations. You can even attain the manual ROI calculation with the assistance of formula:

ROI= {($ 900,000 – $ 600,000)/($ 600,000)}100%= 50 %

Quit worrying since a return on investment calculator can also do the calculation in the same way.

Example 2:

You’re working as marketing manager in a large international company, you have started the company with an initial budget of $50,000. The result of this program is $ 100,000 growth in profit margin over each of the following two years.

First, find the investment in the first two years that assists you to calculate the return on investment.
So to find

FVI= $ 100,000+ $ 100,000= $ 200,000

Here IVI= $50,000

ROI=($ 200,000- $50,000)/ ($50,000)= 0.75 1/100= 75%

Annualized ROI:

The annualized ROI calculation provides a solution to the limitation of the ROI estimation. Annualized return calculator provides us the option to insert time into the account. This provides us the time that we have invested, which is indicated as the holding time for our investments.
Annualized ROI=[(1+ROI)1/n-1]100%

Where:
n= Number of the years the investment held during the project.

ROI and Financial Decision Making:

ROI is useful in making a profitable decision for our businesses, average rate of return on investments is taken as to find is it feasible for us to invest in a certain business or not. It is almost essential to do the initial ROI analysis against the following estimation.

In general the what is a good return on investment is calculated as follows:

ROI LV : Investment is profitable

ROI < LV : investment is unprofitable

Where LV is predefined limit values to calculate annual return on investment

For simplicity to find what is a good return on investment?

ROI ≥ 0 – investment is profitable

ROI < 0 – investment is unprofitable

Calculate annual return on investment ≥ 0 is considered as a profitable business in the first year of the business.

In the professional application, we calculate percentage return on investment by using the Weighted Average Cost of Capital ( WACC) that considered as a limiting value. In this case, the criterion should be like that:
ROI ≥ WACC – investment is profitable (acceptable)

ROI < WACC – investment is unprofitable (not acceptable)

How ROI Calculator Works?

This best and simple Rate of Return Calculator comes with a user-friendly interface and involves a couple of steps to calculate the rate of return (ROI).

Input:

• Add the investment amount
• Enter the expected return on investment ROI.
• You can calculate the annual profit margin by adding the number of the total months or years.
• When you have selected Annualized ROI , you need to add dates and it automatically finds the number of years for your investments.
• When you select the option time needed, then enter Annualized investments.
• You can compare and calculate percentage return on investment to some past profitable projects and make its ROI as Standard.

Output:

• It represents the percentage ROI.
• Annualized ROI is displayed on the expected rate of return calculator.
• Investment loss, Investment gain, and time difference in the return on investment calculator​.
• The pie chart is displayed to represent the percentage .
• The same results also show for the comparative ROI project calculation.

FAQs:

How do you calculate the annualized rate of return?

It is ROI calculated on the annual basis, we can use an annualized rate of return calculator to find this.

Is an ROI of 20% good for investment?

A 20 % ROI is a significant return on investments. For safer investments, you may need to be prior familiar with the full ROI investments.

How do you calculate the expected rate of return of your investments?

Simply use the expected ROI calculator or use the following formulas

Expected Return= (Return A X Probability A)+ (Return B X Probability B)

Where A and B indicted different scenarios of return on the probability of that return

What is RoR and how is it calculated for our investments?

Subtract the starting value from the final values, you need to add dividends and interest for calculating RoR. Dividing both amounts and multiplying them by 100, the RoR calculator finds the % RoR in simple steps.

Conclusion:

ROI calculator is a simple and intuitive metric to find the probability of return on our investments. There are some limitations of the ROI investments as it doesn’t consider the holding period of an investment. The rate of return calculator is an easy-to-use business analysis source that helps to predict expected ROI.

References:

From the source of wikipedia: Return on investment, Purpose, Calculation, Marketing investment, Return on integration (ROInt)

From the source of Investopedia: Return on Investment, Understanding ROI, Limitations of ROI

From the source of Forbes:  Understanding ROI