ROI Calculator

What is an ROI Calculator?

ROI (Return on Investment) calculator helps you calculate the profit or loss earned on any investment in absolute terms and percentage terms, along with the investment’s compounded annual growth rate (CAGR). The Pocketful’s ROI calculator uses the following inputs:

• Total Amount Invested
• Total Amount Returned
• Time Period

The Pocketful’s ROI calculator gives output in the form of

• Total Investment Gain
• Return on Investment (ROI)
• Compounded Annual Growth Rate (CAGR)

This calculator helps you in comparing the profitability of different investments.

How Can an ROI Calculator Help You?

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.

How Does an ROI Calculator Work?

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.

Formula to Calculate Return on Investment

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

Example of Return on Investment Calculator

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 InvestedTotal Investment Gain = ₹1,20,000 – ₹1,00,000 = ₹20,000
• Return on Investment (ROI) = (Total Investment Gain / Total Amount Invested) * 100Return 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} * 100Compounded Annual Growth Rate (CAGR) (%) = ((1,20,000 / 1,00,000) ^ (½) – 1) * 100Compounded 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.

Benefits of Using the ROI Calculator

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.