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How Does The Return On Investment (ROI) Calculator Work?
The Return On Investment (ROI) is a tool created with the ability to help you calculate the return on investment. It is a financial metric often used by businesses to understand the profitability of an investment better. Be it stocks or real estate, any asset with a cost and the potential to offer gains can have an ROI. Its simplicity and ease of use have earned it a broad usage across a wide variety of businesses. The calculator lets you enter the amount invested, the amount returned, and the investment duration. Using these three values, the calculator forms a list of results, providing you with the return on investment.
How To Calculate Return On Investment?
You can calculate the return on investment with the help of two values: the amount invested and the amount returned. The calculator does the heavy lifting for you.
For example, let us assume that Simon invests $50000 into a mining operation, and his profits sum up to a total of $70000. He types these values into the calculator and clicks calculate. This input presents him with a list of useful metrics. Simon finds that his ROI is 40%, a rather substantial return on his initial investment. One issue that ROI presents to users is that there is no timeframe considered. If the ROI is calculated over five years, it would certainly be more desirable to one that offers an ROI in 50 years. This concern is why the Return On Investment Calculator provides a field to enter investment length to determine the annualized return on investment.
How To Calculate Annualized Return On Investment?
Calculating this new metric is calculating ROI with additional input: investment length. Fill this field with the investment period and let the calculator do the work for you.
Going back to the same example, let us assume that Simon invests $1000 instead and gets a return of $2000. Consider two cases, one where the investment length is a year, and one where the investment length has been doubled to two years. Typing these values into the calculator will offer an interesting conclusion. In both cases, the ROI itself remains the same at 100%. But the annualized ROI differs, being 100% in the first scenario and 41.42% in the second case. This variation lets investors place bets on a more viable opportunity, despite other opportunities showing a deceptively high ROI.
Annualized return on investment is a powerful metric that can be used in a wide variety of fields to see whether an investment is worth making in the first place. This calculator does away with the mental gymnastics involved with calculating the return on investment and, subsequently, the annualized return on investment. It gives you the details you need in a precise and concise manner. Use these metrics to develop your business further and make the right decisions.
If you’d like to work with other calculators that help you manage finances, personal savings, and expenses, head here. We have a variety of calculators, including a break-even period calculator, a depreciation calculator, and an inflation calculator, among others, which could help you plan your finances and make business decisions prudently.