ROI, short for return on investment, is one of the most popular ways to determine the profitability of an investment. Here's how its calculated ⤵️
. But how do you measure the performance of your investments? And how can you compare the performance of multiple investments? This is where the ROI calculation comes in handy. In this article, we'll discuss how to calculate return on investment .Return on investment is a way to measure an investment's performance. It also can be used to compare different investments.
Also, ROI can help evaluate the results of transactions that already happened. For example, let's say you buy an old exotic car for $200,000. You then use it for two years and spend $50,000 on it. Now suppose that the car's price goes up on the market and you can now sell it for $300,000. Not only did you enjoy this car for two years, but it also brought you a sizable return on your investment. How much would that be exactly? Let's find out.The ROI formula is quite simple.
One of the biggest limitations of ROI is that it doesn't take into account the time period. Why does this matter? Well, time is a crucial factor for investments. There could be other considerations , but if an investment brings 0.5 ROI in a year, that's better than 0.5 ROI in five years. This is why you may see some talking about annualized ROI, which represents the investment returns you could expect over the course of a year.
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