Question 1

What is ROI and how is it calculated?

Accepted Answer

ROI (Return on Investment) measures the profit or loss relative to the amount invested. The formula is: (Net Profit / Total Investment) x 100. An investment of $10,000 that returns $12,000 has a 20% ROI.

Question 2

What is annualized ROI?

Accepted Answer

Annualized ROI adjusts the return to a per-year basis so you can compare investments held for different time periods. A 50% ROI over 3 years is roughly 14.5% annualized, which lets you compare it fairly against a 12% annual return elsewhere.

Question 3

What is a good ROI for a small business investment?

Accepted Answer

Most business owners look for at least 15-25% ROI on internal investments (equipment, marketing, new hires). Compare your expected ROI against alternative uses of that capital, including simply keeping it in a high-yield savings account.

Question 4

How do I calculate payback period?

Accepted Answer

Divide the total investment by the monthly or annual profit it generates. A $24,000 investment earning $2,000 per month pays back in 12 months. Shorter payback periods mean lower risk because you recover your cash faster.

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