๐ ROI Calculator
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โ Frequently Asked Questions
What is ROI and why is it important?
ROI (Return on Investment) measures the efficiency of an investment by comparing gains to costs. It's crucial for evaluating investment performance and making informed financial decisions.
How is annualized ROI different from total ROI?
Total ROI shows overall return regardless of time, while annualized ROI shows average yearly return, making it easier to compare investments with different time periods.
What is risk-adjusted return?
Risk-adjusted return considers investment risk when calculating returns. The Sharpe ratio, for example, measures excess return per unit of risk taken.
How do I calculate CAGR?
CAGR = [(Ending Value / Beginning Value)^(1/Years)] - 1. It shows the smooth annual growth rate assuming reinvestment of returns.
What's the difference between ROI and IRR?
ROI is a simple percentage return, while IRR is the discount rate that makes NPV equal zero, considering the time value of money and cash flow timing.
When should I use risk-adjusted metrics?
Use risk-adjusted metrics when comparing investments with different risk levels or when risk management is a priority in your investment strategy.
How do additional costs affect ROI?
Additional costs (fees, taxes, maintenance) reduce net returns and should be included for accurate ROI calculation. They're subtracted from gains before calculating ROI.
Can ROI be negative?
Yes, ROI is negative when the investment loses value. A -20% ROI means you lost 20% of your initial investment.