Monday, November 9, 2009

Calculating Return on Investment

I get many questions at seminars about ROI (return on investment) calculations.  Many people utilize this measurement for project selection.  There are several variations of the formula.  Depending on the information that you have available, the complexity of the calculation can grow.  Here are a couple that I use:

Simple:  (net profit / total investment) X 100 = ROI

If you are projecting a profit of $25 on an investment of $160, then the calculation is:

(25/150) X 100 = 15.625%

More complex:  Net Income + (current value - original value) / original value X 100 = ROI

This formula can be used for ongoing multiple year revenues.  For instance, if you purchased $5,000 in stock which is now valued at $5,200 and you have earned $100 in dividends, the calculation is:

((100 + (5,200-5,000) ) / 5,000) X 100 = 6%

Hope this helps!

No day but today,


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