How to Calculate Return on Investment Ratio

Calculating return on investment lets investors compare how different assets performed.

Return on investment applies to any investment an investor or company makes. This ratio is useful to see how an investment performed over the course of a period, such as a month or year. The ratio is also useful in comparing two investments to see which one has a better return.

Instructions

1. Determine the original cost the investor paid for the investment. For example, Investor A bought 100 shares of stock for $20 a share, so the original cost is $2,000.

2. Determine the current cost of the investment. In our example, Investor A's stock rose to $25 a share, so the price of the investment is now $2,500.

3. Subtract the original cost from the current cost of the investment to determine the gain from the investment. In the example, $2,500 minus $2,000 equals a gain of $500.

4. Divide the gain on the investment by its original cost to calculate the return on investment. In the example, $500 divided by $2,000 equals 0.25, or a 25 percent return on investment.

References

• Investopedia: Return on Investment
• Solution Matrix: Return on Investment
• Value Based Management: Return on Investment