Introduction to Return on Investment(ROI) for Kids & Adults
RETURN ON INVESTMENT (ROI):
Return on Investment (ROI) is a term used to measure the profitability of an investment. It helps us understand how much money we can earn or lose on an investment compared to the amount of money we initially invested.
In simple terms, ROI is a way to understand how much money you can earn or lose on an investment. It is calculated by dividing the profit or gain from the investment by the initial investment amount and multiplying by 100 to get a percentage. A higher ROI generally means a better return on your investment, indicating that you earned more compared to what you initially invested.
The formula to calculate Return on Investment (ROI) in simple terms is:
ROI = (Profit or loss - Cost) / Cost * 100
In other words, you subtract the initial cost of the investment from the total profit or benefit generated, and then divide that by the initial cost. Finally, you multiply the result by 100 to express it as a percentage.
To understand net worth better, let's understand it with an example:
Example of Return on Investment (For Kids):
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Imagine you have Rs. 10 and you lend it to your friend, who promises to give you back Rs. 15 after one week. Your ROI is 50% (5 divided by 10, times 100).
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If you buy a toy for Rs. 100 and sell it to your friend for Rs. 120, your ROI is 20% (20 divided by 100, times 100).
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Let's say you invest Rs. 50 in a lemonade stand, and after a day, you make Rs. 70 in sales. Your ROI is 40% (20 divided by 50, times 100).
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Purchasing a pack of trading cards for 20 rupees and selling it for 30 rupees. The ROI is 50%.
Example of Return on Investment (For Adults):
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Buying shares of a company for 1,000 rupees and selling them for 1,200 rupees. The ROI is 20%.
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Investing 1,00,000 rupees in a business and earning a profit of 20,000 rupees. The ROI is 20%.
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Purchasing a piece of jewelry for 50,000 rupees and selling it for 70,000 rupees. The ROI is 40%.
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Putting 10,000 rupees in a fixed deposit account and receiving 800 rupees as interest. The ROI is 8%.
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Buying a car for 10,00,000 rupees and selling it after three years for 12,00,000 rupees. The ROI is 20%.
It is important to know that ROI helps us to understand how much profit or benefit we gained from our investments. It's always important to consider the ROI before making financial decisions.
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