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Return on Investment (ROI) =
Net Profit / Initial Investment
Note: To calculate Net Profit subtract initial investment from earnings, for example Earnings - Initial Investment. If this is a positive number, then there was a profit, if it is a negative number, then there was loss.
Return on Investment, also referred to as ROI, is a profitability ratio that is used to determine the return, as a percentage, that an investment has earned. It is a financial measure to evaluate a net profit or loss relative to how much was initially invested. It is used by businesses to evaluate profitability of an investment, and personal investors use this measure to evaluate personal return on investments such as stocks. It is important to note that this financial measure does not take the time value of money into consideration.
ShoeBurger Corp invested $100,000 in a project that automated several processes in their plant. The company realized a net profit of $18,000 after year one of the implementation of the new processing equipment. What was the ROI for this improvement project?
.18 * 100 = 18%
The company realized an 18% return on this investment.
Return on Investment Formula
Return on Investment (ROI) =
Net Profit / Initial Investment
Note: To calculate Net Profit subtract initial investment from earnings, for example Earnings - Initial Investment. If this is a positive number, then there was a profit, if it is a negative number, then there was loss.
What is Return on Investment?
Return on Investment, also referred to as ROI, is a profitability ratio that is used to determine the return, as a percentage, that an investment has earned. It is a financial measure to evaluate a net profit or loss relative to how much was initially invested. It is used by businesses to evaluate profitability of an investment, and personal investors use this measure to evaluate personal return on investments such as stocks. It is important to note that this financial measure does not take the time value of money into consideration.
Return on Investment Example
ShoeBurger Corp invested $100,000 in a project that automated several processes in their plant. The company realized a net profit of $18,000 after year one of the implementation of the new processing equipment. What was the ROI for this improvement project?
$18,000/$100,000 = .18
.18 * 100 = 18%
The company realized an 18% return on this investment.