ROI Calculator Tool

A return on investment, or ROI, is the measure of a company's ability to produce a profit, based on the assets they posses. The ROI calculation is a basic tool you can use to reach this number. Return on investment is defined as the net profit divided by the company's net worth. This number is then used to express to shareholders, and others, how well the company has performed. While this seems like very simple math, it does get more complicated when you are trying to determine just what needs to go where in relation to profit and worth. Many companies choose to use an ROI calculator to help them figure the return on investment figure. These calculators usually ask companies to provide specific financial information and then present them with their ROI based on those figures.

ROI Calculation

Since the ROI expresses the rate at which revenue is received based on investments in services, products or property, it is a very valuable tool in determining the effectiveness of the investment. Performing the ROI calculation can be simple in some cases, and extremely complicated in other instances. The one variable that is not accounted for in these calculations is time. When determining a rate of return on investment, it is generally assumed that the rate is annual, the ROI for a period of time of one fiscal year.

If a different period of time is being used, it should be specifically expressed. For example, if you need to determine the ROI of a radio advertising campaign for each month of the year, you would state that this it is a monthly ROI. You could then compare the various results to see if your campaign is significantly more successful during different seasons or months.

Rate of Return on Investment

Calculating a rate of return can be simple or complicated, and it can also be annual or annualized. As stated previously, most ROIs are expressed in annual terms. If you choose to annualize, you are also taking into consideration the timing, and maybe even compounding. You can even choose to express your rate of return on investment as an annual percentage yield, or APY.

To calculate an APY:

• Determine all costs associated with the investment in question.
• Calculate or estimate the amount of revenue resulting from this investment.
• Establish the timeline, or number of days, to be used.
• Calculate APY with the formula APY = (return/investment)^(365/days) - 1

Plugging in the values is fairly easy, once you have determined what those values should be. An ROI calculator can be used to streamline and simplify the entire process.