RETURN ON INVESTMENT
What ROI tells you
ROI shows the profit or loss from an investment as a percentage of what you spent.
FORMULA
ROI formula
Take the investment cost away from the final value. Divide that amount by the investment cost, then multiply by 100.
EXAMPLE
$1,000 invested, $1,500 returned
The net profit is $500. That is a 50% return on the original $1,000 investment.
- Investment cost
- $1,000
- Net profit
- $500
- Total ROI
- 50%
TIME MATTERS
Use annualized ROI for different time periods.
A 50% return in one year and a 50% return in five years are not equal. Annualized ROI gives both returns a yearly rate.
Simple ROIShows the total return
Annualized ROIShows a yearly return
ROASUses revenue, not profit
