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What is Return on Investment and how do I do more research about it?

This is something that has been on my mind for a little bit. I heard this is a smart way to make money when you're doing your own business.

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Terrell’s Answer

What is Return on Investment and how do I do more research about it?

This is another great question, I'm just going to keep it simple with the response its the profit you make minus the cost or startup cost for anything you may have invested. An example would be if you made $10,000 from putting in your $1,000. The return on your investment would be 0.9 or 90%.
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Doug’s Answer

‘Return on investment’ is a way to measure how much your investment has made, rather than a strategy or tactic.

In your example a $1,000 investment, returning $10,000 return that would be a 10x return, or 1,000%

But rather than working out the maths behind numbers, you should look for Investment strategies.

There are ‘safe’ strategies and ‘speculative’ which are more ‘risky’

Real estate, stocks, bonds, commodities, are ‘investment vehicles’. But you will also hear it called ’investment strategies’.

Really, the word ‘investment’ is just a fancy word for ‘making money’
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Laura’s Answer

I agree with what everyone has said! I will just add that in a personal, non-monetary, example - ROI is a great way to look at decisions that you make every day. Exercise - what is the return on that investment? How you treat your body in your 20's and 30's will be how your body treats you in your 50's and 60's. So, it's a long term ROI that you're considering when you take up a sport or exercise regimen. Same with food - what is the ROI on that donut? Maybe the joy you get from that desert is worth it! But if you're regularly eating donuts - there will be a negative return on that investment. As in, it will just be a habit that doesn't bring you that much pleasure and the impact on your body is not worth it. In relationships, what is the ROI in going out of your way to acknowledge and appreciate someone? Think about the long term impact that your actions have on the relationships in your life - both negative and positive actions. And have fun with it!!
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Gus’s Answer

Return on Investment or ROI is a tool that measures performance of an investment. For example, if you invest $100 into something, wait a year, and pull out $200 from that investment - you have a 100% ROI on that investment. This can be useful when making decisions about investing, but also when making general money-management decisions. I highly recommend looking at investment-related websites to learn more about this topic
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david’s Answer

I see you have several excellent explainations on Return on Investment. You may also wish to investigate the flipside of that: Net Present Value. That term defines how much you need to invest today to reach a specified amount at x percent interest in the future. But what I think you may have a strong interest in, since you mentioned that the topic related to doing a business, is the term Cash Flow.

In a business, your money is in many places, not just in purchase price you bought something for and the payment received by a customer. Selling an item for $2 that you paid $1 for shows a 100% return on investment. That sounds good, but cash flow shows a different picture, and is the one that often defines whether a company is going well or about to go bankrupt. Considering my simple example, in running a business, you may have purchased 100 of those items, and have sold just three. And maybe the customer paid for the item with a check or a credit card. With the check, you still don’t have the $2, but must wait several days for the check to clear, and you will need to take the check to the bank to do that, causing you to have to leave your business for a while. If paid by credit card, the credit card company takes its percentage and you get the payment two days later, but it’s $1.90, not $2. You also rented a storage room at $500 a month in which to keep your unsold inventory. That taps into your profit computation. There is also the possibility that you purchased the items at $1 each because you committed in a contract to buy at least 1,000 in coming year. That isn’t money spent yet, but it’s $1,000 (at $1 per item) that you are legally obligated to. It is with information such as this that a business must work through to determine if it is showing a profit. Maybe you weren’t interested in this, but I sensed it may be part of your concern, based on how you worded your question. You can read more about cash flow here:
https://www.investopedia.com/terms/c/cashflow.asp

I wish you well in all your pursuits.
Thank you comment icon I'm excited to put your great advice to good use! Noah
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Calvin’s Answer

Great question. There are already several great responses. It is very simple, really. If your friend asks you to loan him $10 as an investment in his lemonade stand business, you would expect your $10 back with some profit. So, That profit is you the return on your $10 investment. Hope this helps.
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