We all wish making important business decisions was as simple as choosing cheese or pepperoni toppings on a pizza but that's not the case. In some instances, decisions like these can make or break your business career. Hence, it's important you have a solid method of calculation. Rate of return is one such formula and you're about to learn about how it helps you make decisions and eventually, money.
Simply put, the rate of return is just the amount you get after the cost of an initial investment (calculated in percentage form). If the percentage is reflected as a positive number, then you have a profit or gain. However, when the percentage is negative, then you have a loss on your hands. This sort of information is incredibly useful when determining whether or not the initial investment you made was good or bad. So why would you want to calculate such a number?
Besides the aforementioned fact, there are a few reasons why it's beneficial to calculate the rate of return on a given investment. For one, how do you know if your investment was a good one? For example, let's say you invested in Apple stock that was showing a significant gain. Calculating the rate of return could help you make a decision to invest in more stocks. On the other hand, if a stock shows a continual loss, then you can take that information, conduct more research and find a better-performing stock on the market.
Another key advantage of this calculation is that it helps improve your decision-making skills and gauge your investment. Ask any successful entrepreneur or investor. They know how and when to make their investments. Having this knowledge also leads to higher levels of confidence and skills to maximize your ROI.
Alright, this part is for all you mathematicians out there. In fact, you don't even need to be a mathematician to use this formula. It's an incredibly easy one to master. All you really need to know are two, major numbers to calculate the rate of return. These are as follows:
1) Current value (the current value of given item).
2) Original value (the price at which you bought the item).
Now, take these two numbers and apply them to the rate of return forumula:
((Current value - original value) / original value) x 100 = rate of return
Keep in mind, the outcome always results in a percentage. Hence, the formula requires you to multiply by 100 to get this percentage number. If you see a positive number, then you have good, profitable investment. If not, then you need to go back to the drawing board. With tools like this, you can make more informed decisions about your business or investment strategy.