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Return On Investment

Return On Investment (ROI) is arguably one of the most important metrics to any investor. It is a very basic calculation that describes the profit or loss on a given investment. ROI is commonly expressed as a ratio or a percentage. The formula for computing the ROI as a percentage is as follows:

$$R = \frac{(P_f - P_i)}{P_i}$$

where $R$ is the ROI, $P_i$ is the initial principal invested, and $P_f$ is the final principal value of the investment.

Example

Assume an investment of $1000 is made in company X and is later sold for $1200. In this example, $P_i$ is $1000 and $P_f$ is $1200. The ROI is then calculated as $\frac{1200-1000}{1000} = \frac{200}{1000} = 0.20 = 20$%.


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