ROI Calculation - Made easy

Summary

In this video, Evelyn Olivares explains how to calculate Return on Investment (ROI), a key profitability metric that helps assess the efficiency of investments. She introduces the formula: ROI = (Net Profit / Investment) × 100, illustrated with simple examples, including break-even scenarios, profit and loss calculations, and a business investment case. By analyzing these scenarios, viewers learn the importance of understanding their investment returns, empowering them to make informed financial decisions.

Takeaways

• 😀 ROI (Return on Investment) is a metric used to evaluate the profitability of an investment.
• 📈 The formula for calculating ROI is: (Net Profit / Investment) x 100, expressed as a percentage.
• 💰 Net Profit represents the earnings from the investment after deducting the initial cost.
• 🔍 Break-even occurs when the investment's return equals the amount spent, resulting in 0% ROI.
• 🚗 Buying a car for $1,200 and selling it for $1,800 yields a 50% ROI, as the net profit is $600.
• 🚤 Purchasing a jet ski for $2,000 and selling it for $1,400 results in a -30% ROI due to a $600 loss.
• 📊 A successful business investment, like a $5,000 social media campaign yielding $7,000 in profit, results in a 40% ROI.
• 📝 Understanding ROI helps individuals and businesses assess the effectiveness of their investments.
• 🎓 The presentation encourages viewers to explore additional resources for managing their investments.
• 🌐 Evelyn Olivares invites viewers to visit her website for more insights and free access to membership benefits.

Q & A

What is the primary purpose of calculating Return on Investment (ROI)?

The primary purpose of calculating ROI is to determine how much money an investment is earning, allowing investors to assess the profitability of their investments.

What is the formula used to calculate ROI?

The formula for calculating ROI is: ROI = (Net Profit / Investment) × 100.

How is net profit defined in the context of ROI?

Net profit is defined as the amount earned from an investment after subtracting the initial investment cost.

What does a 0% ROI indicate?

A 0% ROI indicates that the investment has broken even, meaning there was no profit or loss.

In the car example given, how is the ROI calculated?

In the car example, the ROI is calculated by taking the net profit of $600, dividing it by the initial investment of $1,200, and then multiplying by 100, resulting in a 50% ROI.

What does a negative ROI signify?

A negative ROI signifies a loss on the investment, indicating that the investment's return was less than the initial cost.

What is an example of a loss in ROI provided in the transcript?

An example of a loss in ROI is purchasing a jet ski for $2,000 and selling it for $1,400, resulting in a net loss of $600 and a ROI of -30%.

How does ROI apply to business investments like a social media campaign?

For business investments like a social media campaign, ROI is calculated by comparing the earnings generated from the campaign to the cost of the campaign, demonstrating its effectiveness.

What was the ROI for the social media campaign example?

The ROI for the social media campaign, which cost $5,000 and generated $7,000 in earnings, was calculated as a 40% return.

Why is it important to understand how to calculate ROI?

Understanding how to calculate ROI is important because it helps investors and businesses make informed decisions about where to allocate resources and evaluate the success of their investments.