ROI, a very popular acronym for return on investment, is one of the most commonly used term in the investment world today. This term can either refer to the equation or the financial statement that summarizes the expected results. Return on investment is usually defined as the amount of money an investor stands to gain minus the amount of money he/she stands to lose during his investment. ROI is therefore the opposite of the investment return, the sum of all the gains made. As such, it is used to measure the efficiency of an investment venture.
ROI calculator is a type of financial calculator that enables you to calculate exactly the potential income or profit on your investment after a certain period of time. This useful tool can also be utilized to compare the overall efficiency of some investments with others. Therefore, a potential client is always advised to use this calculator before making any commitment. By calculating potential ROI, the investor gets a clear idea of how much his investments have potentially gained him so far. And also, by making use of the calculator, he can ensure that all his investments are doing well and that he is able to reap the maximum benefits from them.
There are two types of return on investment calculators available. The first one calculates the ROI on the basis of total investment amount and time duration. The second one calculates the ROI on the basis of current value of the invested amount and time duration. In general terms, both these calculators consider cash flows, the level of capitalization, investment growth rate, current price of commodities, and other factors influencing the rate of return on investment.
The first type of return on investment calculator works on the principle of arithmetic. It is usually called as discrete time period calculator. Here, an investment value is numerically entered. A range of input values are available in this case. The calculator then estimates the ROI based on inputs such as date, currency invested amount, current price of commodities, and so on. The most accurate information can be obtained when the date, currency invested amount, current price of commodities, and so on are entered in the starting value.
On the other hand, the second return on investment calculator estimates the ROI on the basis of current prices of commodities. This type of calculator uses market data to approximate the rate of return on investment through the use of basic arithmetic. For example, the rate of return on investment may be determined by multiplying current prices of commodities by the average daily price for each category of the commodity for one year or through a number of years. The calculator uses the data to determine the value of the future asset. In order to obtain the value of future asset, the calculator uses the integral formula of quadratic equations to estimate the value of future asset.
Return on investments can also be calculated by using the return on investment calculator. Again, the details of the calculator are available to the investor. In this case, the total annual ROI is also provided. The equation used in this case is:
The return on investment calculator, when used, can help the investors to make better decisions. The investors can see the current ROI after they make their decisions. The investors can also calculate the ROI on their own if they have their own software for the purpose. However, in most cases, it is much simpler to use the software programs.
Once you have decided on the kind of return on investment calculator to use, you should learn how to use it. To begin with, you need to enter the initial investment amount in the cash flow into the ‘equals sign’ function. Then, press the space bar and the Enter key so that the value of your investment is entered in the calculator. In the case of the equation, once you have entered the values, press the Enter key so as to get the sum of all the results. After that, you can continue to the next step.