2 Things Calculating ROI can do For You

Return on Investment (ROI) is a factor used in measuring or comparing performances of investments. ROI is computed by dividing the net income of an investment by the total cost of the investment. The value is usually noted as percentage; Meaning, a 20% ROI gives 20 cents for each dollar you invested. So if you want to keep it simple and have the ROI as percentage, then calculate it by dividing the net income by the investment cost and multiplying the answer by 100.

The ROI would only result in two ways – positive and negative. If the ROI is negative, it means that the investment is a loss and yields high risk. However, if the ROI is positive, then you should continue investing, as it has been profitable. Obviously, positive ROI is always better than negative ROI. So, how can calculating Return on Investment help you in your investment decisions?

First, if you have a single investment, it could help you determine if the investment is profitable or not. If it yields negative ROI, then better discontinue your investment and look elsewhere. However, if you have several investments on hand, calculating the rate of Return on Investment can help you compare all of your investments, terminate the ones with negative ROI and work more on those with the highest ROI.

However, calculating ROI should only be used as a general guide. Risks, investment costs and other factors involved should be considered before you make a financial decision.