What is a return on investment?
A positive return on investment (ROI) is the holy grail of investing. It’s what all investors are after when they place their confidence and money in a certain asset, and has come to be a universally accepted measure of profitability.
ROI is calculated using the following formula, but to simplify things we’re not including variables such as investment fees and dividends received, which come into play when calculating net return.
- If you invest $100 dollars in 100 company shares valued at $1 each
- And the shares increase to $2, your $100 investment is now worth $200
- To calculate your net return, subtract the initial value ($100) from the latest value ($200), which gives you a net return of $100
- Divide the net return ($100) by the initial cost of the investment ($100) and multiply it by 100
- The ROI on your investment is 100%