Explain the two concepts of return on investmentSolutionRetu

Explain the two concepts of return on investment

Solution

Return on investment (ROI) is a measure that investigates the amount of
additional profits produced due to a certain investment. Businesses use
this calculation to compare different scenarios for investments to see
which would produce the greatest profit and benefit for the company.
However, this calculation can also be used to analyze the best scenario for
other forms of investment, such as if someone wishes to purchase a car,
buy a computer, pay for college, etc.

Simple ROI Formula
The simplest form of the formula for ROI involves only two values: the cost
of the investment and the gain from the investment. The formula is as
follows:

ROI (%) =[ (gain from investment - cost of investment)/(cost of investment ) ] × 100

The ratio is multiplied by 100, making it a percent. This way, a person is
able to see what percentage of their investment has been gained back after
a period of time. Some, however, prefer to leave it in decimal form, or ratio
form.

ROI OVER TIME:

Investors calculate ROI over time to see how the value changes or when a
positive ROI will occur. This gives them a better timeframe of how long it
will take them to get an adequate return on their purchase.