What is Return on Investment?
Return on investment is a very important tool when dealing with profit in an enterprise, business, or company. First, a company or person invests money into a project. This project is considered an investment. The money that the person or company earns is then expressed as a percentage. This percentage equals the total value of his or her assets that are invested.
The assets can include time, money, resources, media, and various other investments. In simpler terms, return on investments is a measure of how much profit is made from any particular investment. The calculation is relatively simple to figure out at a basic level, and as a result, it is widely popular when measuring profitability. In fact, it is used quite often, and for good reasons.
Many companies are graded and judged based on their return on investment. It is important to understand how it works. It is also used to figure out which investment will be the most profitable, which is of utmost value to a business or company owner.
How to Calculate Return on Investment ?
Return on Investment calculations can be very complex, but it is crucial to understand how the formula functions. This is because the formula produces equations that determine the best possibilities with your marketing investments. Luckily, the basic formula is simple to decode, and is very popular. To calculate a return on investment, you can use the commonly known return on investment formula. This formula is as follows:
(Gain from your Investment – Initial Cost of Investment)
/ Initial Cost of Investment
Return On Investment Formula
To see this return on investment formula in action, suppose the following:
A company decides to invest $10,000 into a project. After two years, the company’s investment is worth $15,000. To plug the numbers into the equation, you subtract the investment ($10,000, the initial investment) from the gain that you received ($5,000). This leaves you with an equation of $5,000 (the gain from the initial investment minus the investment) divided by $10,000 (the initial investment). This comes out to be a 50% increase over two years, and as it follows, results in a 25% increase annually. This is all it takes to determine your return on investment.
Calculating R.O.I. is easy and it takes only few seconds. We have created a simple return on investment calculator in excel that will be able to calculate your ROI. Click the link below to calculate your ROI fast in excel.
You can find on the web, with much ease, many different return on investment calculators. Some of these calculators are very intricate and include many different functions, including a selection of different currencies, compound interest rates, inflation rates, tax rates, and various other options.
These roi calculators are designed to provide accurate return on investment totals for you and your company to use to decide on the best investments. Many of the ROI calculators will give you both your overall return on investment, and your annualized return. This makes it easy to compare your yearly success.
Things to Consider with ROI
There are several things that are taken into consideration when considering ROI. Media costs, printing costs, time management, sales, and other technical costs may be used as part of the supposed investment. There is concern over different forms of media and social media. Often, their investment value isn’t taken into account as much as they should be when regarding roi. It is hard to quantize something so abstract, so documenting your media work is beneficial to your company.
It is critical that you include more than just the bottom line costs in order to present an accurate reading on your return on investment. Another problem arrives when a company wants to add new stock. Once a company decides to add new shares of stock, the company’s return on investments will drop. However, if a company is able to sell the stock efficiently, the return on investment can be raised, which is beneficial to a company.
The bottom line is that return on investments are useful when your company wants to determine what the profitability would be if you were to make a new investment.
This investment might be for training, new equipment, new products, advertisements, or something else. If you are able to efficiently use the return on investment calculator, it is not entirely important to memorize the return on investment formula. However, you need a basic understanding of what the formulation suggests in order to succeed with your investments. Knowing the amount of income you’re projected to receive on an investment is a very useful tool to have.