What is the key performance indicator (KPI) of your business? You will surely reply with the term return on investment (ROI) using an ROI calculator.
That is right! It is the most sought-after figure for investment decision-making by business persons and individual investors. And calculating this number has become easier with an ROI calculator.
Continue reading to get an in-depth understanding of this business basic and some reliable tools that you can use.
What Is Return on Investment (ROI)?
Return on Investment, or simply ROI is a financial formula used by businesses, investment firms, and individuals to calculate profit or loss from an investment. Additionally, financiers also use this financial metric to discover the investment efficiency of financial products like stocks, debentures, bonds, currencies, cryptocurrencies, bank deposits, etc.
Finance experts will usually express the value of ROI as a ratio or percentage. ROI is highly valued in the business ecosystem. However, the calculation has one flaw. It can not tell you anything about the investment period. It only informs you about any loss incurred or profits gained from an investment.
What Is the Formula for ROI?
The formula for ROI calculation is quite simple. You can divide the final gain or loss with the initial financed amount. Then, multiply the result by 100 to get a percent value.
Simplified Formula
ROI = ( The Final Gain or Loss/ The Invested Value ) X 100 %
For example, you bought a stock for $100 and sold it for $150. Your final gain is $50. So, if you apply the above formula, the ROI is ( 50/100 ) X 100 %, which is 50%.
Elaborated Formula
ROI = {( FIV – IIV ) / IIV} X 100 %
Where, FIV is the final investment value, and IIV is the initial investment value.
Annualized ROI
Annual ROI = ROI / Period of funding in years %
Let’s consider that you had held the above equity stock for 2 years before selling it for $150. Then, the annualized ROI is 25%. The annualized value is a more meaningful ROI. Because when we talk about gains or potential gains in percentage, we usually mean it for 1 year.
Why Do You Need an ROI Calculator?
The examples that you have found above are pretty simple. But in the real world, the investment figures, gain/loss values, and scenarios are more complex. On such occasions, you can not rely on pen and paper to calculate ROI based on the above formulas. The task will be hectic for big investment amounts and investment lengths.
To quickly get ROI values, you can use any ROI calculator. Since the formula works in the background through an algorithm, there is no chance of human or computational errors.
Also, most ROI computing tools come with extra features and usability. For example, you can share the results online. Alternatively, you can embed the data on your website or mobile app by using a simple code provided by the tool.
Moreover, if you host any investment blogs or websites, you can embed the calculators directly on your website. You do not need to hire a paid programmer to create an ROI web app for you.
Improve Business Decision Making by Knowing ROI
Businesses use the return on investment figure to make accurate funding decisions like buying a new instrument, hiring new staff, creating a new business department, or choosing a sales strategy from multiple ones.
But, how does this simple number help you with decision-making?
Here is how:
#1. The ROI calculation is quite easy. All you need is a few figures that should be readily available in company balance sheets or financial statements.
#2. Since all the industries use the ROI formula to gauge business or investment performance, it has become a globally accepted metric. Furthermore, the ROI of two different financial products or companies is comparable since it gives out the profit or loss percentage.
#3. The ROI value is a clear indication of the net profit from a business unit or team. Thus, profitability measurement becomes easy with ROI.
Next, let’s explore some of the popular ROI calculators.
Calculator.net
Calculator.net’s ROI computing tool is one of the most basic and fastest calculators you can use to get the ROI value. Its user interface (UI) is so simple that home-based businesses or individual investors can quickly understand the operating procedure.
The tool has 3 inputs and 3 outputs. Therefore, you need to enter the values for Amount Invested, Amount Returned, and Investment Time (in date ranges/years). Once you hit the calculate button, you get Investment Gain, ROI, and Annualized ROI. The ROI itself is not a clear figure. Hence, you can compare investment gains with the annualized ROI value.
The tool is available as a web app. There is no need for account sign-up, data sharing, or subscription. Feel free to use it for commercial and personal purposes without any guilt.
CalculatorSoup
CalculatorSoup is yet another popular tool for ROI calculation for micro, small, and medium businesses (SMBs). Not only for business, but you can also use it for personal investments in stocks, bonds, bank deposits, and unconventional lendings.
On this web app, you only need to type in the Initial investment (iv) $ and Final value (fv) $ values. The calculator will generate the ROI value instantly. Along with the value, you also get the detailed formula and calculation steps of ROI. Thus, you can easily confirm if the value is reliable or not.
Furthermore, it lets you easily share the ROI value through Facebook, Twitter, and text messaging. Finally, it is a free tool and open for all sorts of usage.
CalculateStuff
You can also use the ROI computing tool from CalculateStuff to find investment potentials. It is worthy to note that the tool generates the purest form of ROI without any annualized percentages.
Enter the values as Amount Invested and Amount Returned in the tool UI. Once you click the calculate button, you get the ROI figure. Additionally, you will find the formula and calculation rationale just below the tool.
If you need to share ROI results with colleagues or friends, you can do that through Twitter, Facebook, and SMS.
Final Words
You can now compute the ROI of your business or personal investments accurately with the knowledge that you have gained from this article. Besides the basics of return on investment, we have also covered some advanced ROI calculators for regular use in any scenario.
You may also want to learn some vital accounting terms that will help you in your business or personal finance management.
