1. What is Average ROI?

Average Return on Investment (ROI) is a financial metric used to evaluate the efficiency of an investment. It measures the average return per period relative to the investment's cost.

2. How Does the Calculator Work?

The calculator uses the Average ROI formula:

Where:

• \( \text{Total Return} \) — Total profit or return from the investment ($)
• \( \text{Investment} \) — Initial amount invested ($)
• \( \text{Periods} \) — Number of time periods

Explanation: This formula calculates the average percentage return per period, providing a standardized measure of investment performance over time.

3. Importance of Average ROI Calculation

Details: Average ROI helps investors compare different investment opportunities, assess performance, and make informed decisions about where to allocate capital.

4. Using the Calculator

Tips: Enter total return and investment amounts in dollars, and the number of periods. All values must be valid (investment > 0, periods ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What is a good Average ROI?
A: A good Average ROI depends on the investment type and risk level. Generally, higher than inflation and comparable benchmarks is considered good.

Q2: How does Average ROI differ from total ROI?
A: Total ROI shows overall return, while Average ROI shows the average return per period, making it easier to compare investments of different durations.

Q3: Can Average ROI be negative?
A: Yes, if the total return is negative (investment lost money), the Average ROI will also be negative.

Q4: What time periods can be used?
A: Periods can be years, months, quarters, or any consistent time unit, as long as all calculations use the same period basis.

Q5: Are there limitations to Average ROI?
A: Yes, it doesn't account for the time value of money or compounding effects, which more sophisticated metrics like IRR address.