Investment Return

Investment Return

 

Investment return, also known as return on investment (ROI), is a metric used to assess the profitability of an investment. It essentially measures how much gain or loss an investment generates compared to its initial cost.

Here’s a breakdown of key points about investment return:

What it is:

  • A ratio that compares the profit or loss of an investment to its initial cost.
  • Expressed as a percentage.

How to calculate it:

  • A common formula is ROI = (Net Profit / Cost of Investment) x 100.
  • Net profit is the difference between the investment’s final value and its initial cost.

What it tells you:

  • A positive ROI indicates a gain, while a negative ROI indicates a loss.
  • A higher ROI generally suggests a better performing investment.

Limitations:

  • Doesn’t consider the time factor, making it difficult to compare investments with different holding periods.
  • Doesn’t account for factors like inflation or risk.

Usefulness:

  • Helps evaluate the performance of individual investments.
  • Enables basic comparisons between different investments, but consider limitations before making investment decisions solely based on ROI.
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