Calculating the ROI (Return on Investment) of a capital investment for a period of time is vital in determining how that investment performed during that same period. Calculated as a percentage, ROI shows you the percentage of your investment returns in profit or in losses. Alone this number means little, but when used as a comparison to other investment opportunities, it can serve as an investment aid, indicating if your investment funds were used to provide you with the highest rate of returns possible.
Determine the net profit the company earns you during the period of time for which you're calculating the ROI. To calculate net profit, take the revenue of the business over the time period and subtract from that revenue, all of the costs incurred by the business during the period. For example, with a revenue of $50,000 during the period and costs of $49,000 the net profit is $1,000.
Add up the total amount of money you have invested in the business. This includes any monies placed into the business as a capital investment, whether it's during the time period of the calculation or not. If you initially invested $50,000 and later invested twice more at $25,000 each time, then the total investment amount is $100,000.
Calculate the ROI for the time period by dividing the net profit for the period by the investment amount and then multiplying the result by 100 to obtain a percentage. For example, business profit for the period resulting from revenues of $50,000 and costs of $49,000 is $1,000. With total investment in the company of $100,000, you'd divide that $1,000 profit by $100,000 resulting in .01. Multiply this by 100 and you have a ROI for that period of 1 percent.
- How to Calculate ROI
- How to Calculate the Holding Period Return
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