Calculating ROI
 

I was having what I thought was a pretty strange discussion with someone today. I then realized they live in an alternate universe from mine.

This is the right formula: ROI = (revenue – cost) / (cost)
This is the wrong formula: ROI = (revenue) / (cost)
No, I really don't think this is subjective.

e.g. a 15/1 odds horse pays $32.00.

The ROI for the investment is = ((32-2)/2) = 1500% (15:1)
The ROI for the investment is not (32/2) = 1600% (16:1)

The first method is the one I was taught in high school bookkeeping class. It's also the one in used in every book I've ever read on investing.

The second method seems to be popular in handicapping books. Both are valid provided that everyone is using the same formula and understands the formula.

I agree with the above posters, 'cappers seem to be the only ones doing the latter. Showing it as a ratio as opposed to a + / - percentage never made sense to me.

never mind which formula is right.....just get some more $32 horses :D

IF I bet $100 (investment) and get back $150 (return) my roi is 1.50 (1.5 x what I bet).

that's how I always do it. :D

You are correct. I think there would be less confusion if you used the terminology profit and amount bet(risked) rather than revenue and cost. roi is simply total profit(or loss)/total dollars bet. So over 100 races if you bet $10 on each horse it would cost you $1000. If you only got back $900 your roi is -10%(-100/1000) if you get back $1043, your roi is 4.3% (43/1000) In your example the profit was $30 the amount bet $2 so the roi is as you stated...............Sports bettors especially might get confused. Lets say you bet 100 games at $110/100 and win 51. You win $5100 on your winning games and lose $5390 on your losing games, you lost $290. The roi is -290/11000(as you risked $110 a game and not $100 a game) or an roi of -2.636%.

1500%

The reason I mentioned this to begin with would be the following scenario..
You have an investment "opportunity" the person making the offer states the historical ROI is 0.90. Myself I would think I was getting $1.90 for every dollar invested, and to my surprise later on I would be given back 90 cents on every dollar. True ROI was -0.10, I lost 10 cents on every dollar. I think this is why it's important to stress the "return" portion of the acronym. It's what you get back for what you invested minus the cost, if you get less back you had a negative "return". I speculate that this originated with gamblers, because 90% return means you kept 90 of every 100 pennies that day.

Thanks for all the responses, interesting to see the perspectives on this.

You are correct, but I changed the ROI acronym to ROW to mean "return on wager."

I was just having the same argument last weekend...it was to the point where I was drawing diagrams on the back of the PPs...

I finally won :bang: :bang:

But yes you are correct OP

I have an offer exclusively to poll voters who chose the ROI equation that yielded 1600% in the example...I have a system that yields 100% ROI...that's right GUARANTEED 100% ROI and I'll sell it to you pollsters and you only for a mere $25...Wouldn't you like to yield a guaranteed 100% ROI??? Of course you would! I take paypal...


spoiler alert!
--------------
After I collect your fee I'll just show you how to bet on horses that will scratch...

$2 return/$2 investment = 1.0 = 100% ROI (wow! that's impressive)
or
($2 return-$2 investment)/$2 investment = 0% ROI (oh ok this makes sense now)

What was your ROI?

correct, but apples to oranges to the OP's question.

Your ROI is 50% is a correct thing to say.
Your ROI is $1.50 is a correct thing to say too.

Both statements are true but statement 1 is true always and statement 2 is only true if it is known your base investment is $1. A third statement saying your ROI is $300 could also be true if it's known the base investment is $200.

roi
 

tom , that's the way I figure r.o.i.