How to Measure Return on Investment
ROI or return on investment is one of the most common measurements used to determine investment performance. It is calculated by dividing the amount you've gained or lost by the amount of your initial investment over a certain period of time. The metric can be used to find the return on most any asset which is one of the reasons for its popularity. From corporate projects to mutual funds, ROI is used to measure whether the investment should be accepted or rejected.
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Instructions
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Determine the initial cost of the asset. This is the total cost of the investment. For stocks and bonds, it is the price paid for the security plus any fees and/or commissions. For jobs or projects, it is the cost of starting the work including labor and/or materials.
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Determine the current value of the asset. This would be the current market value of any stocks or bonds which easily can be found on most investment research websites or newspapers. However, some assets may not trade in a liquid market, i.e., real estate. For this, you can use sales from properties which are similar in square footage and location or hire an appraiser.
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Subtract the current market price from the original purchase price. This will produce a gain (positive number) or loss (negative number). For instance, if you purchased property for $100,000 and according to a new appraisal it is worth $150,000, the difference is a $50,000 gain.
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Calculate the ROI by dividing the profit by the total investment: $50,000/$100,000 = 0.50, or a 50 percent annual ROI.
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