Google Answers Logo
View Question
Q: ROI calculation formulae ( Answered 5 out of 5 stars,   0 Comments )
Subject: ROI calculation formulae
Category: Business and Money > Finance
Asked by: tvr-ga
List Price: $3.00
Posted: 28 Jun 2003 13:46 PDT
Expires: 28 Jul 2003 13:46 PDT
Question ID: 222921
I have come across different formulae for calculating the ROI (return
on investment) for any business activity. For example, the most
simplest formula for calculating ROI seems to be: (E/I -1)
where E: earnings, I: investment and it gives the ROI as a percentage.

I am interested in finding out two other most commonly used simple
formulae and at least one complex formula that takes several variables
into account.

Subject: Re: ROI calculation formulae
Answered By: cynthia-ga on 01 Jul 2003 11:23 PDT
Rated:5 out of 5 stars
Hi tvr,

This first page has several great articles for you:

ROI Resources - Quantitative ROI

From that page, there is a formula is at this link specifically:    

Here's a PDF document that discusses Performance-Based ROI
Scroll down for the formula.

Eeeny Meeny Miney Moe: Which ROI Formula Do You Use?
..."(T - E) + R = ALE

"T" is the cost of new training/learning. 
"E" is the dollar savings recovered from existing training/learning. 
"R" is the cost of non-training initiatives (work harder/overtime,
hire more people/added salaries, etc.).
"ALE" is the Annual Loss Expectancy yield (the amount of money you
will lose due to training and non-training initiatives).
To determine the return on training investment, divide the expected
annual loss (ALE) by total revenues realized after implementing the
new training/learning solution..."

Other ROI discussions at that site:

Here's a link to an ROI calculator that you can download:

Return on Investment: What is ROI analysis?
..."Simple Return on Investment
Return on investment is frequently derived as the “return”
(incremental gain) from an action divided by the cost of that action.
That is “simple ROI”. For example, what is the ROI for a new marketing
program that is expected to cost $500,000 over the next five years and
deliver an additional $700,000 in increased profits during the same

Simple ROI = (Gains - Investment Costs)/Investment Costs..."
For an example, download the calculator an enter your own numbers:

Here's another one that calculates the ROI of the cost of education:

Let's Do The Numbers
..."Our formula for ROI calculates this rate of return, which is
represented by X in the following equation:

X = (I/C+L) + G  ..."

A complex formula taking several things into account:

To Buy or Not to Buy?,4621,301024,00.html
..."Expressed in a formula, ROI is calculated as follows:
ROI = -PV + ? (Y x (1 - t)) / (1+r)n + ? D x t / (1+r)n + FV/(1+r)n -
((FV - NBV) x t )/ (1+r)n

PV = Purchase price of the asset
Y = Income (or savings) over the life of the asset
D = Annual depreciation
r = Risk-free rate
t = Tax rate
n = The life of the asset (or hold period) in years
FV = Future Value of the asset when sold (or salvage value)
NBV = Book value of the asset after depreciation

If you divide the ROI by the PV, you will get the ROI percentage..." 

This White Paper looks worth reading as it discusses the common
shortfalls of standard ROI calculations:

CTP Economics: Looking Beyond ROI ($29.95 to buy report)
..."An investment in new equipment (even CTP gear) is always a risk.
Although you can't eliminate uncertainty about the technology, market
demand or future innovations, you can at least measure and control the
financial hazards. But the common ROI formula, which divides expected
revenues by purchase cost, almost never gives you a true measure of
risk and reward. Far better is a tool called Net Present Value, which
takes into account the length of time before you get your money back
and lets you quantify the risk you are running. We tell you how it's

Hope this helps... For more, you can go to Google's main page and
enter the search strings below and peruse the results for even more

If I can be of further assistance, please don't hesitate to ask for a
clarification before rating my answer, ok?


Search strategy used at Google:
"ROI formula"
"ROI calculator"
standard "ROI formulas"
example "ROI formulas"
sample "ROI formulas"
tvr-ga rated this answer:5 out of 5 stars
Provided specific answers

There are no comments at this time.

Important Disclaimer: Answers and comments provided on Google Answers are general information, and are not intended to substitute for informed professional medical, psychiatric, psychological, tax, legal, investment, accounting, or other professional advice. Google does not endorse, and expressly disclaims liability for any product, manufacturer, distributor, service or service provider mentioned or any opinion expressed in answers or comments. Please read carefully the Google Answers Terms of Service.

If you feel that you have found inappropriate content, please let us know by emailing us at with the question ID listed above. Thank you.
Search Google Answers for
Google Answers  

Google Home - Answers FAQ - Terms of Service - Privacy Policy