September 2009

Simple Calculation:  Return on Investment

return-on-investment-calculation

Return on Investment, or ROI as it’s known, is a simple calculation investors use to determine the amount of profit, before tax and after depreciation, from an investment property.

ROI is usually expressed as a percentage of the original total cost invested. Here is a simple formula for calculating ROI.

ROI = income / invested capital

Example:   $100 Monthly net cash flow x 12 months = $1,200.  Now divide the $1200 by $5,000 cash investment = 24% ROI

Not bad compared to average stock market gains of 10%, huh?   (When the market is up.)

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