Overview

Return on investment (ROI) is a financial metric intended for the measurement of benefits an investor receives for the amount of investment made. Generally, a higher ROI ratio is preferred for investors. The formulas for calculating ROI are as follows:

ROI = Net Income / Cost of Investment

or

ROI = Investment Gain / Investment Base

The ROI formula can be modified to account for the timing of investment:

Annualized ROI = [(Ending Value of Investment / Beginning Value of Investment)^(1 / # of Years)] - 1

Where # of Years = (Ending Date of Investment - Starting Date of Investment) / 365

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