How to Find Actual ROI (Return on Investment)
Return on investment (ROI) is a financial metric used to determine the relative success or failure of a venture. Rather than give a monetary value to determine how well a venture succeeded, ROI will return a percentage, showing how much return each dollar invested earned for the investor.
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Instructions
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1
Calculate the costs (expenses) associated with the venture. For example, if you are doing a simple stock return on investment and you bought 100 shares of the stock at $50 a share, the first expense is the stock expense, which would come to $5,000. However, other incidental costs must be taken into consideration, such as a transaction fee associated with the purchase. If you made this purchase through a company like Scottrade, you would have a $7 trading fee. So the total costs are actually $5,007. If you sold the stock, you would have the $7 fee for selling the stock as well, raising the total costs to $5,014.
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2
Calculate the total gain of the venture. If you are working on a stock return on investment and you calculated your total costs to be $5,014 for buying and selling the stock, the next thing you need to do is figure out how much money you earned through the venture. Include all gains. If you sell your stock for $55 a share, you have made a gain of $5,500. If your stock paid a dividend of 50 cents a share, this would be included in the gain, raising it to $5,550. All gains must be taken into account.
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3
Subtract costs from gains. The value you computed in step one and the value in step two will be subtracted. Make sure to subtract costs from gains and not vice versa. In the example shown, the gains were $5,550 and the costs were $5,014. So by subtracting costs from gains, you would find $5,550 minus $5,014 or $536.
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4
Divide the value from Step 3 by the total costs in Step 1. So you would divide $536 by $5,014 to find 0.1069 for the example given.
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5
Multiply the value from Step 4 by 100 to get the percent increase. So the value 0.1069 multiplied by 100 will give 10.69 percent. This value indicates that the investment had an actual return on investment of 10.69 percent. Or, in other words, for every dollar invested, there was a return of just under 11 cents.
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Tips & Warnings
This value is used to compare large and small investments. The value is used to make a common financial metric available to all ventures in order to compare their performance. For any venture, the same formula can be used.
The hardest part of finding the actual ROI is remembering all of the expenses and gains associated with the venture. Variable costs must be included, so if you have overhead costs such as employee salaries and building expenses associated with keeping the employees in their office, you will need to include those variable costs in your total costs from Step 1.
