When presented with a multitude of investment options, return on investment is a metric that can help you separate good bets from money pits. It allows you to evaluate potential ventures, predict profitability and mitigate risks.
Knowing the formulas to calculate it helps you make informed decisions and ensure that you never miss out on an opportunity to earn maximised returns. To know the ROI – return on investment – formula and how it helps you evaluate investments, read on.
This metric is a financial ratio that you can use to understand the potential benefits you can receive compared to the cost of investment.
Here is a brief overview of the return on investment:
This metric is instrumental in allowing you to assess your investments and make smarter financial decisions. The following is the ROI – return on investment – formula you can use:
ROI= Net Return on Investment/Cost of Investment × 100
Here is how to calculate the return on investment using an alternate method:
ROI= Final Value of Investment – Initial Value of Investment/Cost of Investment X 100
Making smart investment decisions is crucial to get the most from your money. Here’s how the calculation of return on investment can help:
As there’s no one-size-fits-all, figuring out what constitutes a good ROI can be tricky. Here are the factors to consider:
Risk-averse investors can opt for investment instruments with lower ROIs for greater stability and predictability, and vice versa.
Determining the right ROI depends on the investment horizon, as a shorter duration generally offers lower ROIs.
Whether your financial objective is wealth accumulation, income generation or capital preservation determines good ROI for you.
Whether you’re eyeing stocks, real estate or entrepreneurial ventures, the calculation of return on investment allows you to earn higher returns. If you need funds for unexpected expenses and don’t want to liquidate your assets, get hassle-free Instant Personal Loans of up to ₹5 lakhs from Fibe.
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The following is a brief overview of return on investment-
You can use the following two formulas to calculate ROI-
ROI= Net Return on Investment/Cost of Investment × 100
Or
ROI= Final Value of Investment – Initial Value of Investment/Cost of Investment X 100
Follow these simple steps for calculation of return on investment on MS Excel.
An ROI of 25% is an ambitious target and will require you to take higher risk. It is crucial to note that there is no guarantee that an investment instrument can provide this much return year after year.
You can compute this metric for any period. Most commonly, it is calculated on an annual basis.
You can invest in the following instruments to earn this much return:
However, note that the returns can fluctuate depending on the market conditions. Diversifying your portfolio can help you better manage this risk and get the best returns.
It is possible to earn this much return in the stock market. However, earning sustained returns of 30% year after year may not be possible.
Since it has been the historical return of many investment instruments, earning an investment return ratio of 7% is considered feasible.
