How To Calculate Your ROI ( Return On Investment) - Sample!
It is important to know your Return on Investment—ROI, before accepting external funding. In fact, it is one of the items of business plan an investor will want to see. It is as important as your BEP - Break Even Point. In as much as it is such a relief to get funding for one’s business, it is the easiest and quickest way to lose ownership of one’s business without hope of regaining such ownership, especially with debt related funding.
Return on investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested. ROI is usually expressed as a percentage and is typically used for personal financial decisions, to compare a company's profitability or to compare the efficiency of different investments.
The return on investment formula is: ROI = (Net Profit divided by Cost of Investment) multiplied by 100
For example, an investor buys $1,000 worth of stocks and sells the shares two years later for $1,200. The net profit from the investment would be $200 and the ROI would be calculated as follows:
ROI = (200 / 1,000) x 100 = 20%
The ROI in the example above would be 20%. The calculation can be altered by deducting taxes and fees to get a more accurate picture of the total ROI.
Why is this important?
ROI is one of the most used profitability ratios because of its flexibility but some are skeptical because basic ROI calculation does not take time into consideration.