Ratio of Net Income to Cost of Investment Net Income / Cost of Investment The net income (net Return on investment) refers to the profit earned minus the expenses incurred.
Comparing Investment Gains to Base Invesment Investment Gain / Investment Base The investment gain is the added value on the initial investment. Interpreting the ratios obtained from either of the formulas is essential to understanding each of the terms. If the ROI calculations yield positive results, then the investment is viable and has earned a profit after all expenses and costs are considered. On the other hand, a negative impact means that the investment is not feasible. Advantages of Return on investment calculations. The ROI Measurements provide reliable information that can be used to make sound financial decisions. The information and ratios resulting from the formula are also specific. The data used in the calculation of ROI analysis is specific to particular businesses meaning the results obtained would also be careful. Specificity in information is an excellent aspect of the measurement tool. The ROI calculation formulas are simple and straight forward. The simplicity of the measurement design means that anyone can use the formula with little to no training. The simplicity of the formulas also means that the ROI analysis can be easily operated without complication or fear of contradiction. ROI is also a popular metric because of its versatility and flexibility. The measurement formula can be manipulated to fit into the specific needs of each business. The ROI analysis is not stringent or confined to particular industries.