Course Content
How to Calculate Return on Investment (ROI)
ROI is a way to measure an investment's performance. As you'd expect, it's also a great way to compare the profitability of different investments. Naturally, an investment with a higher ROI is better than an investment with a lower (or negative) ROI. Curious how to measure this for your own portfolio? Let's read on.
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How to Calculate Return on Investment (ROI)
About Lesson

The ROI formula is quite simple. You take the current value of the investment and subtract the original investment cost. Then, you divide this sum by the original cost of the investment.

ROI = (current value - original cost) / original cost

So, how much profit would you make by selling the exotic car?

ROI = (300,000 - 200,000) / 200,000 = 0.5 

Your ROI is 0.5. If you multiply it by 100, you get the rate of return (ROR).

0.5 x 100 = 50

This means that you made a 50% gain on your original investment. However, you need to take into account how much was spent on the car to get the full picture. So, let’s subtract that from the current value of the car:

300,000 - 50,000 = 250,000

Now, you can calculate ROI while taking into account the expenses:

ROI = (250,000 - 200,000) / 200,000 = 0.25

Your ROI is 0.25 (or 25%). This means that if we multiply your cost of investment ($200,000) by your ROI (0.25), we can find the net profit, which is $50,000.

200,000 x 0.25 = 50,000
Exercise Files
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