What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!

# How to Convert ROI

Original post by Adam Parker of Demand Media

Return on investment (ROI) is a measure of the profit generated from an investment as a percentage of the original investment. As it is a percentage, ROI must be converted in order to give a return in pure monetary terms. Further, it is useful to compare alternative investments when establishing the significance of ROI.

## Contents

### Step 1

Multiply your initial investment amount by the ROI. For example, if you invest \$5,000 in a mutual fund and receive a report saying that the fund has achieved a 15 percent ROI during the past year, multiply the \$5,000 by 15 percent. In this case, the answer is \$750, which is the nominal profit on the investment.

### Step 2

Add the product to your initial investment. Returning to the example, \$5,000 plus \$750 yields a sum of \$5,750.

### Step 3

Compare the result to the amount given in your portfolio. If the 15 percent ROI listed in the report is accurate, your result of \$5,750 should match the amount listed in your portfolio, less any fees and expenses.

### Step 4

Account for alternative investments. While ROI is useful, it sometimes helps to analyze it in a broader context. For example, instead of investing your money in a mutual fund, you could simply deposit it in a savings account to receive risk-free interest. Assuming a 2 percent savings rate, the 15 percent ROI on the mutual fund represents a 13 percent ROI above what you would receive by depositing your money in a savings account.

```
inline.find('script').remove();
jQuery('#article p').eq(1).after(inline);
});

```

### Tips & Warnings

• While ROI is important, you should also consider other factors such as volatility and liquidity when making investments.