 # What are ROI (Return on Investment)

## Definition of ROI (Return on Investment)

What is (ROI)? The full form of (ROI) is Return on Investment. This is such a formula that any organization or any distributor whether it is monthly or early can easily find out its income. (ROI) is a formula that serves to measure the return of investment, in simple words, if (ROI) is that formula, then profit or income of any organization or any distributor can be easily known. (ROI) Formula shows net income received on investment.

## What is the formula for Return on Investment (ROI)?

Net income = revenue ( income) – Expense

ROI := ( Net income/ Investment) *100

Friends (ROI) always depends on 2 things

1. The amount of investment you have made and how much income is coming from it. And all the expenses you have done in making your income like salary, rent, godown rent. building rent. After deducting all this from income, we get net profit.

2. The second thing comes that how much you have invested for the income (revenue) you have received. If you have invested to earn your income, then we also have to include the investment to get the (ROI) so that the right (ROI) is obtained.

## There are two ways of finding out (ROI)

1. You can add all the expenses, profit, investment of a month together so that you will get one month’s (ROI).

2. In the second method, you multiply 12 months in one month (ROI), which will get your one year (ROI).

## How to Calculate Return on Investment (ROI)

Net income = revenue ( income) – Expense

ROI := ( Net income/ Investment) *100

If you have invested instead of 1000,000/-, from which you have earned 80,000/- income. But you have also incurred expenses to get that revenue. Which you have to deduct from income. If all your expenses together are 50,000/- then the net profit is 30,000/-. I am giving you some examples of investment and expenditure in (ROI).

List of Investments for (ROI)

2. Closing Stock

3. Credit in the Market

4. Credit balance with the company

5. Loss / Termination

List of expenses for ROI

1. Vehicle :- 10000/-

2. Warehouse Rent :- 7000/-

3. Salary :- 18000/-

4. Office and Administration :- 10000/-

5. Electricity Expenditure :- 5000/-

Total expenditure Rs. 50000/- done.

I am telling you by calculating the revenue in (ROI) formula.

ROI := (Net Income/Investment) *100

ROI per month = 30000/1000000 = 0.03

ROI per month in % = 0.03*100=3%

1 year ROI = 3*12 = 36%

## The Examples of ROI calculations?

There should always be a good discussion of an individual or a company before building an ROI. Let me explain you by giving an example of a colony. Suppose a businessman is building a new colony, he should think about all the expenses in advance, how much will be invested and how much ROI will be received. For this, the investor has to take care of the cost of the land, maintenance cost, security, staff salary etc. After that the investor has to calculate the net income. Invest in this income. After including all the expenses, if he is getting good revenue then he should invest. Only then will an investor get ROI. Otherwise damage may occur.

## Understanding return on investment (ROI)

(ROI) is a formula from which the income of any organization can be easily derived, hence this formula is more popular. Let me explain to you (ROI) by giving an example of shares. Suppose a person bought shares worth Rs 100,000/- from the market and after 1 year he sold the shares for 120,000/-, then he got an income of 20,000/-, then 20,000/- on this investment. (ROI) has been achieved. To get this net income you can use this formula Net Profit (Investment-Expense = Net Income) So you will get (120,000-100,000=20,000) 20,000/-.

## Limitations of Return on Investment (ROI)

Where (ROI) is a good formula to generate income, it also has its limitations as it is not necessary that an individual’s income should always be according to the formula. Suppose a person invested 100,000/- for one year and in return he got 20,000/- (ROI). But next year not 20,000/- but 150,000/- then in this situation (ROI) formula will prove to be wrong. Because a person’s ROI is not always the same every month. The true return of any investor cannot always be obtained using the ROI formula.

## What Is a Good ROI for investors?

Whenever a person invests, he always does it only to get good (ROI). A good ROI is one which gives good income to the investor in a short period of time. Every investor thinks before investing that if he invests more then he will get more (ROI) too. The good (ROI) is that the investor also gets good revenue over time. Because the investor will invest (ROI) only when he will get good income in that investment. If the investor gets the returns late, the chances of getting it (ROI) will be less, then he will think before investing.

What is investment in accounting

What Are Gain in Tally

What Are Groups In Tally Prime

What are Unearned Revenue in Accounting

Outstanding Expenses in Accounting

What is Accrued Income

Complete information of Depreciation In Tally Accounting

Debit and Credit Rules of Tally Accounting

What are Prepaid Expenses in Accounting

### 6 thoughts on “What are ROI (Return on Investment)”

1. That was an amazing article about ROI, it helps me in understanding how ROI is important for business.