This guide explains how to calculate your return on investment, or ROI, using Excel formulas.
Return on investment (ROI) is a financial metric that helps you evaluate the profitability of an investment. It measures the percentage gain or loss relative to the initial investment cost.
This metric is useful for comparing different investments or assessing the performance of your current investments.
We calculate ROI by dividing the net profit (or loss) by the initial investment. This guide provides a step-by-step tutorial on calculating ROI using Excel formulas.
Calculating ROI with Excel Formulas
Here’s how to calculate ROI using Excel:
Step 1: Identify the initial cost of your investment.
In our example, we invested $10,000 in a mutual fund.
Step 2: Identify the current value of the investment.
This represents the amount you’d receive if you sold the investment today. Suppose our initial investment is now worth $11,500.
Step 3: Calculate the net gain (or loss) on your investment.
Subtract the initial investment from the current value. A negative result signifies a net loss, while a positive result means you have a net profit.
=B2-B1
We’ll use the formula B2-B1 to find the net gain from our investment.
Step 4: Calculate the ROI by dividing the net profit by the initial investment.
=(B2-B1)/B1
Apply percentage formatting to the result.
Using our ROI formula, we find that our investment has an ROI of 15%.
Practical ROI Example with Excel
Let’s explore an example of calculating ROI using Excel.
Consider a scenario where you want to compare the performance of three different stocks. You have the initial investment amount and the current value for each stock.
To find the return on investment for Stock A, use this formula:
=(B3-B2)/B2
This formula calculates the net profit by subtracting the initial investment (B2) from the current value (B3) and then divides the result by the initial investment.
Copy the formula to find the ROI for Stock B and Stock C. The results show the ROI for each stock, allowing for easy performance comparison.
These steps provide the information required to calculate ROI in Microsoft Excel.