Investopedia Video: How To Calculate Return On Investment (ROI)

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Return on investment allows an investor to evaluate the performance of an investment and compare it to others in his or her portfolio. Find out how to calculate ROI and how to use to your advantage.

For more on different ROI ratios, and how to use them -- check out;

FYI On ROI: A Guide To Calculating Return On Investment
http://www.investopedia.com/articles/basics/10/guide-to-calculating-roi.asp

How To Calculate ROI For Real Estate Investments
http://www.investopedia.com/articles/basics/11/calculate-roi-real-estate-investments.asp

Find Quality Investments With ROIC
http://www.investopedia.com/articles/fundamental/03/050603.asp

CFA Level 1 Exam Prep: Financial Ratios - Return On Investment Ratios
http://www.investopedia.com/exam-guide/cfa-level-1/financial-ratios/return-investment-ratios.asp

ROI helps investors evaluate
the performance of an investment,

and compare it to the performance
of their other investments.

School's out for summer, and Joe's
children ask for some startup cash

for their respective
summer businesses.

Joe gives
each child $100.

In return, they must split their profits
50-50 with Joe at the end of the summer.

Joe's daughter opens
a lemonade stand.

Joe's son buys
a lawn mower.

As the summer
progresses,

the children work hard
at their businesses.

Joe's daughter sells
many cups of lemonade,

and his son mows every
lawn in the neighborhood.

At the end of the summer,
Joe's son has earned $500.

Joe receives
$250.

Subtracting his original
investment of $100,

Joe is left with
$150 profit.

An impressive 150 percent
return on investment.

Joe's daughter
has earned $1,000.

Joe receives $500, minus
the $100 original investment,

and that's $400 profit -
a whopping 400 percent ROI.

Joe earned $4
for every $1 he invested.

Joe's daughter
provided the best ROI.

ROI is one of many measures
that help investors evaluate investments.