Return on Investment

Return on Investment is also known as the rate of return. The return on investment is the ratio between financial loss and benefit of an investment and is measured on the basis of its performance.

The return on investment is calculated as ROI= Cost of Investment/Net Income x 100. Here ROI represents the return on investment; NI represents Income from investment- cost of investment.

The ROI is expressed as percentage such that if the investment cost is $20,000, while the gain is $22,000, the net income is calculated as $22,000-$20,000 =$2000, while the ROI is 2000S/20000$ x100 = 10% or 0.1 x 100.

However, if the ROI is negative, it implies that the investment cost is more than the income made from that investment.

Thereby this is an indication of loss and such investments cannot be considered.

Motive

Investments are done with the motive and aim of earning decent profits, regardless of whether we earn good money from investments depends on the price the asset is acquired. However, conducting proper research of the market is also highly essential. Gold investments, real estate investments, mutual fund investments and stock market investments are regarded to show good profits to the investors in the long term.

However, plan to find out the return earned so that investors can plan further investments and this should be done as a continuous process without any sort of interruption. Calculating return on investment is done by taking the values in the return as per the investment formula.

Factors to be considered

Calculation of return on investment is done taking into factors such as inflation that reduces the amount of generated return. Money that is cash in hand is of more importance than any other returns. Hence, factors like inflation cannot be ignored and should be discounted as a fixed percentage from the value of net income calculated.

Analysis of ROI
The analysis of ROI is done with various inputs such that a shareholder can employ it in two investments in different products and thereby can keep the capital invested as the input.

Likewise, an investor can consider his investment decision about the company he wants to invest in after checking the figures of return on investment presented by two companies about their products. The financial analysts ensure that there is return on investment so that there is gain.

Some of the hitches are the predictions and this is followed by distorted figures shown by companies to the investors. Relying simply on ROI analysis is not sufficient, as there are all chances of manipulation of figures.

So use relevant tools and read consumer surveys and market research to arrive at a correct decision