Return On Investment (ROI) Calculator Template

How can you determine whether your investment is profitable? And if you have investments across multiple channels, how can you identify which one is performing best? In all cases, you need to calculate return on investment, and this requires using the calculator provided in this template. If you are considering starting an investment, read this article to the end to learn the best ways to monitor the efficiency of allocating funds across different business activities.

What Is Return on Investment?

Return on investment is a metric used to measure the performance efficiency and profitability of an investment in a specific project or business sector. It can also be used to compare multiple investments across different fields and identify which area delivers the greatest benefit. ROI therefore shows the profit generated by an investment relative to its original value.

What Is the Return on Investment Calculation?

The return on investment calculation is based on total net profit divided by the original investment
amount. The formula is as follows:

ROI = Net Profit / Investment Cost

Why Is the Return on Investment Calculator Template Important?

1. Comparing Different Investments

Companies often allocate investments across more than one business area or company. The calculator helps determine which investment has generated the most satisfactory return from the company’s perspective. This allows the company to decide which businesses are most deserving of additional investment.

2. Reallocating the Investment Budget

Using the ROI calculator makes it easier to redistribute the investment budget in a way that maximizes profit, as the differences between each investment become clearly visible.

3. Supporting Long-Term Planning

By reviewing the results of each investment channel, the company can estimate future profits and plan its financial objectives more accurately and effectively. It can also identify the right time to expand operations or hire new employees.

What Are the Elements of the Return on Investment Calculator Template?

The ROI calculator template consists of two main elements based on the net profit principle:

1. Net Profit/Loss

To determine whether an investment is profitable or loss-making, you need to know both its current value and its original value. Subtracting the original value from the current value shows whether the result is a net profit or a net loss.

• A positive result indicates a profit.
• A negative result indicates a loss.

2. Original Investment Value

Calculating net profit requires knowing the original value of the investment. This value is then used in the ROI calculator.

How to Calculate the Return on Investment Rate

1. Determine the Original Investment Value

How much did the company originally invest in Company X’s shares? This is the first question that must be answered before calculating ROI. Assume the total investment value was SAR 100,000 and the shares were purchased at SAR 10 each, meaning more than 10,000 shares were acquired.

2. Determine the Current Value of the Investments

What is the current value of all investments made in Company X? If the value of each share has increased to SAR 15, the current value of the shares would be SAR 150,000.

3. Calculate Net Profit/Loss

Subtract the original value from the current value to determine whether the investment has generated a profit or a loss. Continuing the example, subtracting SAR 100,000 from SAR 150,000 results in a net profit of SAR 50,000.

4. Divide Net Profit by the Original Investment Value

Once net profit has been calculated, ROI can be determined by dividing the net profit by the original investment value. In this case, dividing SAR 50,000 by SAR 100,000 results in an ROI of 50%.

Note: In the attached template, net profit or loss and the ROI percentage are calculated automatically once the original and current investment values are entered.

Who Benefits from Calculating Return on Investment?

Several parties can benefit from calculating return on investment, including:

• Investors: They can assess the efficiency of their investments in companies and projects and use the calculator to determine whether continuing with those investments is financially worthwhile.
• Company Boards of Directors: To encourage more investors to invest in the company, each company should calculate and disclose its ROI at least quarterly or annually. This enhances credibility, trust, and transparency between the company and its investors.