Financial Ratios

Rate of Return

> A rate of return (RoR) is the net gain or loss of an investment over a specified time period, > expressed as a percentage of the investment’s initial cost. > > Investopedia

The Formula for Rate of Return (RoR): $$\text{Rate of return} = [\frac{(\text{Current value} - \text{Initial value})}{\text{Initial value}}]\times 100$$

Example of a Rate of Return (RoR)

> The rate of return can be calculated for any investment, dealing with any kind of asset. Let’s > take the example of purchasing a home as a basic example for understanding how to calculate the > RoR. Say that you buy a house for 250,000 (for simplicity let’s assume you pay 100% cash). > > Six years later, you decide to sell the house—maybe your family is growing and you need to move > into a larger place. You are able to sell the house for $335,000, after deducting any realtor’s > fees and taxes. The simple rate of return on the purchase and sale of the house is as follows:

current_value = Decimal.new(335_000)
initial_value = Decimal.new(250_000)
FinancialRatios.RateOfReturn.calculate(current_value, initial_value)