How is the return on investment calculated?

Return on investment, or ROI, is a key metric used by investors to evaluate an investment's profitability. It measures the return on an investment relative to the initial cost. An investment calculator formula that estimates future value is a useful tool.

ROI can be calculated using the formula:

ROI = (Net Profit / Cost of Investment) x 100

Where:

• Net Profit = Total earnings from investment - Cost of investment
• Cost of Investment = Original amount invested + any costs like trading fees
• ROI is expressed as a percentage. The higher the ROI, the better the return on investment.

For example, if you invest ₹1,00,000 in stocks and earn ₹20,000 profit after a year, the ROI is:
(₹20,000 / ₹1,00,000) x 100 = 20%

This means you have gained a 20% return on your investment. Investors use ROI to compare returns between different investment opportunities. It provides a measurement of profits relative to costs. ROI and other factors like risk tolerance, investment goals, and time horizon should be considered when making investment decisions.