A ratio measuring the gain or loss from an investment relative to its cost, expressed as a percentage.
Return on Investment (ROI) measures how much profit or loss an investment generates relative to its cost. The formula is: ROI = (Net Profit ÷ Cost) × 100.
You invest $5,000 and sell for $6,500. ROI = ($1,500 ÷ $5,000) × 100 = 30%.
Simple ROI does not account for time. A 30% return over 5 years is very different from 30% in 6 months. Use annualized ROI for fair comparisons across different holding periods.
The yearly cost of borrowing money expressed as a percentage, including fees and interest.
Interest calculated on both the initial principal and the accumulated interest from previous periods.
The process of spreading loan payments over time so each payment covers both principal and interest.
The total value of all assets minus all liabilities, representing overall financial health.
The ownership value in an asset after subtracting any debts owed against it.
The rate at which the general level of prices for goods and services rises, decreasing purchasing power.