3/26/2023 0 Comments Economics of one unit calculator![]() ![]() Therefore, which computer represents the better investment: Investment A or Investment B? That business could then calculate the ROI when evaluating two different types of computers using anticipated costs and projected gains to determine which ROI is higher. These net profits could include hard dollar amounts coming from increased productivity and a reduction in maintenance costs compared to the previous computers. Then, the business would need to calculate net profit over a set period of time. The business needs to consider the actual price of the computers, tax and shipping costs, consulting fees or support costs paid to purchase, plus setup and maintenance costs. What are examples of ROI calculations?Ĭalculating the investment figures for each piece of the ROI equation can sometimes get complicated for businesses.įor example, if a company wants to invest in deploying new computers, it must consider a variety of deployment costs. Individuals can calculate the ROI to judge their own personal investments and compare one investment - whether it is a stock holding or a financial stake in a small company - against another in their own investment portfolios. Businesses also use ROI calculations when evaluating future or prior investments. ![]() ROI can be used to evaluate various investment decisions, comparing them to their initial cost. If the percentage is negative, the investment is generating a loss. In short, if the percentage is positive, the returns exceed the total cost. Meanwhile, if the calculation has a negative ROI percentage, that means the business - or the metric it is being measured against - owes more money than what is being earned. When ROI calculations have a positive return percentage, this means the business - or the ROI metric being measured - is profitable. To calculate ROI with the most accuracy, total returns and total costs should be measured. ROI can be used to gauge different metrics, all of which help determine how profitable a business is. This image shows how ROI can be calculated. ROI is shown as a percentage instead of a ratio for ease of understanding. Each equation may measure a specific set of investments. ![]() There are numerous other ways to calculate ROI, so when discussing or comparing ROIs between departments or businesses, it is important to clarify which equation was used to determine the percentage. Multiplying that by 100 yields an ROI of 150%.Īlthough the first investment strategy produced fewer dollars, the higher ROI indicates a more productive investment.Īnother possible method to calculate ROI is investment gain divided by investment base, or ROI = Investment gain / Investment base. However, the ROI offers a different view: $15,000 divided by $10,000 equals 1.5. It is significantly more than the $200 in net profits generated in the first example. Therefore, this particular investment's ROI is 2 multiplied by 100, or 200%.Ĭompare that to another example: An investor put $10,000 into a venture without incurring any fees or associated costs. Because ROI is most often expressed as a percentage, the quotient should be converted to a percentage by multiplying it by 100. Using the formula above, ROI would be $200 divided by $100 for a quotient, or answer, of 2. If that venture generated $300 in revenue but had $100 in personnel and regulatory costs, then the net profits would be $200. The most common is net income divided by the total cost of the investment, or ROI = Net income / Cost of investment x 100.Īs an example, take a person who invested $90 into a business venture and spent an additional $10 researching the venture. There are multiple methods for calculating ROI. ![]()
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