how to do and explain ROI?

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Answer:

Calculation of ROI:

The basic ROI formula is : Net profit/total investment * 100

The shareholders can calculate the value of their stock investment in a particular company by use of this formula: Net income + (current value - original value)/original value* 100.

And another method for calculating ROI is : Final value of investment - initial value of investment/cost of investment * 100

Explanation of ROI :

Return on investment is a financial metric of profitability that is widely used to measure the return from an investment.Return on investment is a simple ratio of thegain or loss from an investment relative to its cost.

Return on investment is a rough measure of an investment's profitability.
ROI has a wide range of interpretations,such as the profitability of stock investment, purchasing a new maufacturing plant,or the result of a real estate transaction.
ROI is completely easy to calculate and understand, and its simplicity means that it is a standardized,universal measure internationally.
On thee downside, ROI doesn't account for how long an investment is held.

Interpreting ROI:

As already noted, Return on investment is intuitively easier to understand when expressed as a percentage instead of ratio.
The Return on investment calculation has "net return" in the numerator as returns from an investment can either be negative or positive.
A positive Return on investment figure means that net returns are in the black , as total returns exceeds total costs.A negative Return on investment figure means that net returns are in the red ( in other words , this investment produces a loss ), as total cost exceeds total returns.\
To compute return on investment with greater accuracy , total returns and total costs should be considered.For an apples-to-apples comparison between competing investments , annualized ROI should be considered.

Annualized ROI = [(1+ROI)1/n - 1]*100.

ekkarill92 answered 1 year ago

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