What is Return on Investment?
Return on Investment
You must have heard the term Return on investment many times, which means - the amount of profit on an investment, eg - if Kaushik made a fixed deposit of 1 lakh, on which he gets 1 lakh 60 thousand after 5 years, So in such a case, Kaushik has the benefit of that fixed deposit investment.
Total profit = 1,60,000 - 1,00,000 = 60,000 / -
60% if we extract profit in percentage without taking time into consideration.
But if the annual growth rate of profit is calculated keeping in mind the time, then we get to see two things.
Absolute Annual Growth Rate - 12%
Compound Annual Growth Rate - 86%
That is, how much profit we are actually making from an investment, what is the annual growth rate of profit, we know all this by calculating the return on investment.'
How is Return on Investment calculated?
Return on investment is usually calculated according to the annual growth rate and thus the profit on an investment can be calculated in many different ways.
Taking Return on investment is the two most popular ways to calculate.
Absolute Annual Growth Rate
By Absolute Annual Growth Rate we mean, when calculating the profit as a percentage, time is not taken into account like - in the above example 5 years total profit is 60% and 60% if 12% every year, divided by five years .
The formula for extracting Absolute Return is -