ROI Calculator

The ROI calculator can help an investor in making informed investment decisions in the following ways:

1. Profitability:

   Through the ROI calculator, one can assess whether their investment is profitable or not.

2. Comparison:

   Various investment options are available in the market; hence, an ROI calculator can help you choose the best option.

3. Planning:

   The ROI calculator can be a handy tool for financial planning; it helps you estimate returns on investments accurately.

4. Estimating Goals:

   ROI calculators can help you set up financial goals by determining how much money you need to invest to achieve your goal on time.

5. Assessment of Risk:

   Negative ROI indicates an unprofitable investment, which an investor can use to identify risks and take early action.

The working of the ROI calculator depends on the inputs provided by the user, and the steps of how this works are mentioned below:

1. Input:

   In this section, various inputs are required from the user end, such as Total Amount Invested, Total Amount Returned and Time Period.

2. Application of Formula:

   Pocketful’s ROI calculator calculates the Total Investment Gain, Return on Investment (ROI) and Compounded Annual Growth Rate (CAGR) automatically.

3. Analysing Return:

   The return on investment can be positive or negative; a positive ROI indicates that the investment is profitable, whereas a negative ROI indicates that the investment resulted in a loss.

The formula to calculate return on investment is:

ROI = (Total Amount Returned - Total Amount Invested) / Total Amount Invested * 100

ROI = (Total Investment Gain / Total Amount Invested) * 100

Where:

• ROI:

  Return on Investment

• Total Amount Returned:

  It refers to the current value of your investment.

• Total Amount Invested:

  It refers to the total amount that was invested initially.

• Total Investment Gain = Total Amount Returned - Total Amount Invested

Let’s understand the return on investment calculator with an example:

Mr A has purchased 1000 Shares of ABC Ltd.

After two years, he sold the shares at ₹120 per share.

Hence, their net profit will be calculated as the difference between the total amount returned and the total amount invested.

• Total Amount Invested= 1,000 Shares * ₹100 per share = ₹1,00,000

• Total Amount Returned= 1,000 Shares* ₹120 per share = ₹1,20,000

• Time Period= 2 Year

After calculation, we get the following output.

• Total Investment Gain = Total Amount Returned - Total Amount Invested

  Total Investment Gain = ₹1,20,000 - ₹1,00,000 = ₹20,000

• Return on Investment (ROI) = (Total Investment Gain / Total Amount Invested) * 100

  Return on Investment (ROI) = (20,000 / 1,00,000) * 100 = 20%

• Compounded Annual Growth Rate (CAGR) (%) = {(Total Amount Returned / Total Amount Invested) ^ (1/Time Period) - 1} * 100

  Compounded Annual Growth Rate (CAGR) (%) = ((1,20,000 / 1,00,000) ^ (½) - 1) * 100

  Compounded Annual Growth Rate (CAGR) (%) = 9.54%

Hence, Mr. A has earned a 20% ROI and a CAGR of 9.54% from investing in ABC Limited.

The major benefit of using an ROI calculator is as follows:

1. Reduce Errors:

   Using the ROI calculator can reduce the chances of errors while calculating the ROI of any investment.

2. Decision Making:

   Through the ROI calculator, one can calculate the returns of various investments and choose the investment with the highest return potential.

3. Efficient:

   One can save time and avoid complex calculations by using Pocketful’s ROI calculator.

4. Portfolio Review:

   Review the portfolio and calculate the returns whenever they want and can identify any loss-making investment.

5. Simplicity:

   People who do not have any financial knowledge can also use this and calculate the returns on their investments.

On a concluding note, using a Return on Investment calculator can help an investor calculate returns. It helps them in assessing the profitability of a particular investment option without using any complex formulas. Upon getting the result, one can easily compare it with other investment options to decide whether their investments are performing well or not. However, it is advised to consult an investment advisor.