How do you calculate return on investment?
To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio. In the above formula, "Gain from Investment” refers to the proceeds obtained from the sale of the investment of interest.
Return on investment, or ROI, is the ratio of a profit or loss made in a fiscal year expressed in terms of an investment and shown as a percentage of increase or decrease in the value of the investment during the year in question. The basic formula for ROI is: ROI = Net Profit / Total Investment * 100.
- To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio. In the above formula, "Gain from Investment” refers to the proceeds obtained from the sale of the investment of interest.
- Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake.
- Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting to analyze the profitability of a projected investment or project.
Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund).
- To find the net gain or loss, subtract the purchase price from the current price and divide the difference by the purchase prices of the asset. For example, if you buy a stock today for $50, and tomorrow the stock is worth $52, your percentage gain is 4% ([$52 - $50] / $50).
- To calculate the expected return of a portfolio simply compute the weighted average of the expected returns on all the assets in your portfolio, with each asset's return weighted by the proportion of the total portfolio each asset represents.
- To calculate the gain, take the price for which you sold the investment and subtract from it the price that you initially paid for it. Now that you have your gain, divide the gain by the original amount of the investment. Finally, multiply your answer by 100 to get the percentage change in your investment.
Total Stock Return. The formula for the total stock return is the appreciation in the price plus any dividends paid, divided by the original price of the stock. The income sources from a stock is dividends and its increase in value.
- Our first strategy is concentric diversification. A company may decide to diversify its activities by expanding into markets or products that are related to its current business. For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks.
- A process that takes place when a business expands its activities into product lines that are similar to those it currently offers. For example, a manufacturer of computers might begin making calculators as a form of related diversification of its existing business.
- Conglomerate diversification is growth strategy that involves adding new products or services that are significantly different from the organization's present products or services. Conglomerat diversification occurs when the firm diversifies into an area(s) totally unrelated to the organization current business.
Updated: 2nd October 2019