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Rakhi Vasavada
Rakhi Vasavada, Financial Advisor
Category: Finance
Satisfied Customers: 4480
Experience:  Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
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I have calculated my ROI over the term of my investment: 40,000

Customer Question

I have calculated my ROI over the term of my investment:
40,000 cost
200,000 return
20year term

(200,000-40,000)/40,000=4*100=400%

How do I calculate ROI over the year?
Submitted: 3 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 3 years ago.

Dear Friend,

Hello and welcome. Thank you for using Just Answer.

The typical formula for calculating ROI is as under and the answer you get is usually for ONE year.

ROI = (Gains – Cost)/Cost
=(200000-40000)/40000
=160,000/40000
=4

=400%


What you have calculated is anyway for one year. If you say that this is over 20 year term, then for a year, it would be 400/20 = 20%

 

This is because, if you reverse calculate it and cross check, it would still come to 20 as calculated as under. The undergiven formula is used for calculating for ONE year.

 

ROI = (Net Profit / Cost of Investment) x 100

=(40000/200000)100

=0.20*100

=20% ==> ROI for ONE YEAR

 

I am sure this would help.


You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards

Expert:  Rakhi Vasavada replied 3 years ago.

Dear Friend,

Hello and welcome. Thank you for using Just Answer.

The typical formula for calculating ROI is as under and the answer you get is usually for ONE year.

ROI = (Gains – Cost)/Cost
=(200000-40000)/40000
=160,000/40000
=4

=400%


What you have calculated is anyway for one year. If you say that this is over 20 year term, then for a year, it would be 400/20 = 20%

 

This is because, if you reverse calculate it and cross check, it would still come to 20 as calculated as under. The undergiven formula is used for calculating for ONE year.

ROI = (Net Profit / Cost of Investment) x 100

=(40000/200000)100

=0.20*100

=20% ==> ROI for ONE YEAR

I am sure this would help.


You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards

Customer: replied 3 years ago.
That's great, thanks. Just to clarify though...

My 40,000 is a one off payment, whereas the 200,000 is spread over 20years. Does the affect the outcome?
Customer: replied 3 years ago.
Relist: Other.Couldn't wait for the clarification. Also when I do the same calculation assuming my cost would be more with the same return the ROI works out better when it should be worst shouldn't it? So I need to work out the ROI over a year for:Cost 40,000 (one off initial payment) with 200,000 return over 20 years... So what would be the ROI for this over a year.And the same withCost 10,000 (one of initial payment) with 200,000 return over 20 year.
Expert:  Rakhi Vasavada replied 3 years ago.
Dear Gemma,

Yes, it would still remain same. This is because you are accumulating gains over 20 year period with ONE year averaging at 20%.

Now, with ht same Cost 10,000 and 200,000 return over one year, it woul work out as under.

ROI = (Net Profit / Cost of Investment) x 100
=(10000/200000)/100
=0.05*100
=5%


I am sure this would help.


You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards

Customer: replied 3 years ago.
Sorry...could you jut explain why when investing a smaller amount and getting a larger figure back in return why the percentage ROI is smaller compared to investing a larger figure and getting the same return back? Over twenty years or not I want the figures over 1 year (10000/yr)
Customer: replied 3 years ago.
Relist: Answer came too late.
Expert:  Rakhi Vasavada replied 3 years ago.
Dear Gemma,

The primary reason of the ROI is smaller because the amount is invested NOT at a one go but spread of a period of years. This is the primary reason for this.

I gave you the figures for ONE year, Gemma, using the following formula.

ROI = (Net Profit / Cost of Investment) x 100

This will calculate for ONE year only.

You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards
Customer: replied 3 years ago.
Using the initial formula should the 10,000 investment not work out at 1900% or 95% over a year? Making it a bigger ROI for the smaller amount invested
Expert:  Rakhi Vasavada replied 3 years ago.
Dear Gemma,

No, it wont work out that way. Using the initial formula you would get returns over the period of years of investment, say 20 years. It will keep the yearly ROI unchanged.

The one year ROI in case of 10,000 was 5%.

If we use the initial formula,
ROI = (Gains – Cost)/Cost
=(200000-10000)/10000
=190000/10000
=19
=1900%

You are right, that the 5% ROI, compounded over 20 years would fetch 1900% but the ROI for a year still remains unchanged.


You may please leave a positive rating if this helps as that is the only way we receive credit for assisting you. Alternatively feel absolutely free to revert with more queries if you have.

Warm Regards

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