Return on Investment is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.
To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
The formula to calculate the ROI is given below.
If an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be considered.
Let us see how to calculate ROI using MS Excel (R).
Suppose a project has the following cost (investments) and revenues (benefits) for the next 7 years.
Let us calculate the ROI based on the above formula.
The formula for each cell is shown below.