In this session, I explain how to calculate after tax return on investment (ROI) and how to annualize return on investment.
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The formula for Return on Investment (ROI) is quite straightforward. It is calculated as follows:

ROI=(Net Profit Cost of Investment/cost of investment)×100

In this formula:

Net Profit is the gain from the investment minus the cost of the investment.
Cost of Investment refers to the total amount initially invested.
The result is expressed as a percentage, providing a simple and clear understanding of the return gained from the investment in relation to its initial cost. However, as you mentioned, this formula does not account for the length of time the investment is held, which can be an important factor in assessing the efficiency of an investment.


Net Profit after Taxes: This is the profit from the investment after subtracting any taxes paid on the investment's gains. It is calculated as the gross profit minus the taxes incurred.
Cost of Investment: This is the total initial amount invested.
To calculate ATRR:

Start by calculating the gross profit, which is the difference between the final value of the investment and the initial cost of the investment.
Then, determine the tax amount on the investment's gains. This depends on the tax rates applicable to the investment income.
Subtract the tax amount from the gross profit to get the Net Profit after Taxes.
Divide this net profit after taxes by the Initial Cost of Investment to find the return as a ratio.
Finally, multiply this ratio by 100 to convert it into a percentage.
This percentage, the ATRR, represents the return on investment after accounting for taxes. It provides a more realistic picture of the investment's performance, as it shows the actual return an investor gets to keep after tax liabilities are met. This is particularly important for comparing investments with different tax implications.






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