How to Calculate Your Return on Investment

Let’s say that you decided to invest in a small business that you think is going to do very well. You put a lot of money into it, hoping that it becomes a big success. Eventually, you find out that it did, in fact, do very well, so of course you expect to receive a cut of the profits.

However, you need to be able to determine the correct percentage of what you’re going to get so that you’ll know just how successful the initial investment proposal has been in generating profits. So, this article’s focus is on how you’re going to calculate your investment contract returns.

How to calculate your investment returns

Even if you would rather have an investment return of 10% rather than 9% now, would you choose it? You have to know that when it comes to calculating annual investment returns, everything isn’t equal, and the differences in calculation methods will show the striking similarities over time. So, here are some ways that you’ll be able to calculate your investment returns:

Use a spreadsheet program

One of the best program templates that you could possibly use is Microsoft Excel as it has all of the options that you’ll need. You can also make use of Google docs spreadsheet since it allows you to easily share the information with others.

Make the layout

While creating the layout for your sample spreadsheet, make sure that you choose a single row where you can input numbers for a couple of years.

Total investment calculator

In the first year, you should be showing the total investment sheet that’s going to be required as a negative number. The reason for this is because the investors are the ones providing the money.

Returns

From the first and all the way to the tenth year, you should show the returns that your investors are going to receive (only after you’ve calculated your share). Make sure that these are positive numbers.

Cash flow

Once you’re able to calculate both, the next step that you’re going to take is to add the two rows together so that you’ll be able to obtain the new cash flow number.

Sum things up

Sum up all the totals of all ten years to get total money in, total, money in the bank, and the net profit.

While the words ‘return on investment’ are mostly used as a financial term, the saying is also commonly used in casual conversations to denote the gain from a cost for some element of input other than a financial report. This can be anything from one’s time investment, emotional investment, or even the investment sheet of one’s own efforts.

It is true that ROI as a metric can be used in ways that will help determine one’s own profits. However, its universal applicability is also the reason why it’s hard to use. While the ROI formula may be simple enough to follow, the problem comes from those who have no idea when it comes to arriving at the correct amount of both profit and loss.

Investing tips to improve your returns

If you want to know how to gain more out of your investments, then here are some tips:

Rewire your brain

Adopt a plan based on the science of investing and make sure that you stick to it. Unfortunately, the majority of people use their brains to work against this smart goal. There are a lot of mental errors that cannot be supported by sound data. An example would be a sudden market crash which you have no control over.

Take control of your emotions

You shouldn’t let your emotions dictate the choices you make. While, yes, it’s unavoidable to be emotionally affected when your stock prices go up and down, you should be disciplined enough not to make snap decisions. This way, you will avoid making costly investing mistakes.

Change your focus

Nobody will ever be able to predict when the market is suddenly going to rise or fall, so it’s best to focus on capturing the returns of the global markets with a diversified portfolio. This way you can control both expenses and turnovers.

So if you would like to learn more about this topic, such as how inventory investments affect cash profits and cash flow, then you can go through our other available articles to help you get the information you need.

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