# How to Calculate the Return on Investment

While making a new investment, we always wonder about its returns. Here's a way to calculate the returns and know if the investment is worth it or not.

Arjun Kulkarni

Calculating Net Income

Another important question we need to sort out is how to calculate net income. It is important because, in order to calculate the ROI, we need to find out the net income first. This is a slightly difficult procedure. Let us see it. For e.g., say you have invested in real estate by purchasing a property without a mortgage loan, i.e. with your own money.

*discount*the value of these cash inflows over the 5 years at a predetermined percentage.

Formula to Calculate Returns

Once you've come to grips with the gains from investment, then calculating the ROI is easy. You have now found out all the required details and now you just have to fill them into the formula. The formula to calculate the return on investment is:

(Gains from investment - Costs of investments) / Costs of investments * 100

(Gains from investment - Costs of investments) / Costs of investments * 100

($7652.5 - $2200)/ $2200 * 100

= 247.84 %

So, if you are able to pull off this investment proposition, you are earning a whopping 247.84% of your invested amount!

Why to Calculate it?

The ROI calculation is important to compare two different investment opportunities. Suppose you had $2000 and 5 different investment propositions before you, how would you pick one? The ROI method helps you select the best investment plan. Hence, it would help you choose the plan which gives you more returns.