“Return On Investment (ROI)” is a measure of performance that is used to determine the productivity or efficiency of an investment or to compare the productivity of multiple investments. ROI directly measures the return on a particular investment relative to its cost. To calculate ROI, the return or profit of a particular investment is examined in relation to its cost. By dividing the rate of return by the cost, the rate of return on investment is calculated. The result is usually a percentage or a ratio.
We can calculate return on investment in the following two ways.return on investment (ROI) = (present value of investment - investment cost) ÷ Investment cost
In fact, the formula for the rate of return on investment is a fraction of the form and denominator, which is obtained by dividing the two by the percentage of the return on investment. Also, the rate of return on investment can be calculated by dividing the return on an investment by the cost of doing so.return on investment (ROI) = Profit rate ÷ Cost rate
According to the above formula, for example, if the cost of a project is equal to 10,000 $ and the amount of profit obtained from it is equal to 10,000 $, the return on investment will be equal to 1 unit or 100%.
Acceptable return on investment varies depending on the industry and the length of the investment period. For example, a business owner might expect a threefold return on investment. 15% is a good rate of return for active investors.