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# ROI Calculation

How do you calculate return on investment?

## How to Calculate Return on Investment?

ROI measures the amount of return on an investment relative to the investment cost. ROI can be calculated by dividing the Net profit (Earnings - cost of initial investment) by the cost of the investment. The result is multiplied by 100 to express the ROI in terms of percentage. Here is a brief tutorial on how to calculate the Return on Investment using the below simple steps.

Formula:
ROI = (Net Profit / Initial Investment) x 100
Net Profit =
Earnings - Initial Investment

Steps for ROI Calculation:
Lets consider an example, where an initial investment of Rs. 100000 is made. The gross earnings per year is considered to be 180000. The Return on this Investment could be calculated as below.
Step 1: Assigning the values
Earnings = 180000
Initial Investment = 100000
Net Profit = Earnings - Initial Investment
= 180000-100000 = 80000

Step 2: Substituting the Values
ROI = (180000 - 100000)/100000 x 100
= (80000/100000)x100
= 0.8x100
= 80%

NOTE: It is always advisable to invest in a project with a comparatively high ROI percentage over other investments.