The return on investment (ROI) is an important metric used to measure the profitability of an investment. It measures how much money is earned from an investment, relative to the money invested. The ROI formula is simple and easy to use. It only requires two variables: the gain from the investment and the cost of the investment. This metric is crucial for investors to make informed decisions about their investments, and to assess the relative performance of different investments.
The rule of 72 is a simple formula for how investors can double their returns, which you get by dividing any return into an investment of $0. This is a useful tool for investors to estimate the time it will take for their investments to double in value. For example, if an investor has an investment that earns 8% a year, the rule of 72 states that it will take 9 years for their investment to double.
To calculate return on investment, you need to first determine the net profit from the investment. This is the money earned from the investment, minus any expenses incurred. Then, divide this number by the total cost of the investment, including any fees or taxes. The result is the return on investment, expressed as a percentage.