零点课堂 | How to Calculate Return on Investment (2)

ROI calculation applies to not just trading or investment, but any kind of business or purchase. If you plan to open or buy a restaurant, you should do some number crunching first. Would opening it make sense from a financial perspective? Calculating an estimated ROI based on all your projected expenses and returns may help you make a better business decision. If it seems like the business would turn a profit in the end (i.e., have a positive ROI), it may be worth getting it started. Also, ROI can help evaluate the results of transactions that already happened. For example, let's say you buy an old exotic car for $200,000. You then use it for two years and spend $50,000 on it. Now suppose that the car's price goes up on the market and you can now sell it for $300,000.

How to calculate return on investment (ROI)

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 

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