Return on Investment
It is the amount of money you get on investing in some resource. It is used to test the efficiency of an investment and also used to compare two different investments of same value. Return on investment ROI is calculated using simple formula
ROI= (profit on investment – invested amount)/ invested amount
It could be positive or negative and a positive sign shows profit and negative sign implies loss.
Let us understand ROI with example
Say, a farmer invested equal amounts of money INR 10,000 each on sugarcane and rice. (the ripening period may be different for two but this is an example). At the end of period he got INR 20,000 on sugarcane and INR 30,000 on rice.
So the profit respectively is 10 and 20 thousand and the ROI for sugarcane is 100% profit and for rice is 200% profit. So, ROI for rice is more than for sugarcane and from now on the farmer will invest in rice other than sugarcane because it is offering better returns.
Note :
Remember while comparing the two different investments the time and the amount of investment must be same otherwise it will result in false ROI. Therefore it is better to calculate your return on the investment and invest accordingly.
Well-written article and easy to understand. When we invest our money, we usually do it with high hopes for some additional future income. That is why observing and monitoring our investments are necessary, even though we have some professional help it is still quite welcomed to monitored it by ourselves as well.