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Author Topic: Clarifying ROI  (Read 1702 times)
Yuusha
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August 25, 2011, 10:08:06 AM
 #1

Alright, it's time for me to be a nitpick here. All the gambling sites seem to have the concept of ROI all wrong. ROI is a method of measuring profits in relation to capital invested. The appropriate way of calculating ROI is: Net profit / Investment.

This means if you're for example playing a Double ponzi game, and invest 1 BTC, you will get 2 BTC back. Meaning:

2 / 1 = 2, meaning 200% ROI.

100% ROI would mean just getting you initial 1 BTC back, and 50% ROI would mean you lost half of your investment. If ROI was measured the way people here use it, it would not be able to measure a loss.

So... yeah. Just me being a bit of a nitpick.
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Cory
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August 25, 2011, 10:16:52 AM
 #2

According to Invesopedia (http://www.investopedia.com/terms/r/returnoninvestment.asp) and Wikipedia (http://en.wikipedia.org/wiki/Rate_of_return#Uses), the calculation is actually .

So Bitcoinduit et al. have it right. Cheesy


 
 
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Yuusha
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August 25, 2011, 10:21:55 AM
 #3

No, that's Rate of Return, not Return on Investment. Rate of Return measures a CASH FLOW, while Return on Investment measures the total return.

Rate of return would be used on for example an investment where you invest 1 BTC, and then get 0.2 BTC every month. That would be a rate of return of 20%.

http://en.wikipedia.org/wiki/Return_on_investment

EDIT: Actually, on closer inspection, it seems that there are simply multiple ways of calculating ROI, and this is just the way I've been taught. I think mine makes more sense, though, since it tells you how much of your investment you get back, and if that's above 100%, then you've made a profit. If it's below 100%, it's a loss. But eh, seems like both are correct.
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August 25, 2011, 10:29:48 AM
 #4

No, that's Rate of Return, not Return on Investment. Rate of Return measures a CASH FLOW, while Return on Investment measures the total return.

Rate of return would be used on for example an investment where you invest 1 BTC, and then get 0.2 BTC every month. That would be a rate of return of 20%.

http://en.wikipedia.org/wiki/Return_on_investment
The linked Invesopedia article is on ROI, and the first sentence of the Wikipedia article mentions that ROR is also known as ROI. The page you linked to says: "For a single-period review just divide the return (net profit) by the resources that were committed (investment):
Return on investment (%) = Net profit ($) / Investment ($)"

Say you invest 1 BTC into a pyramid scheme on Bitcoinduit. The listed ROI is 5%, so you can expect to get back 1.05 BTC. If you put that into the equation, the ROI = 0.05 = 5%.


 
 
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Yuusha
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August 25, 2011, 10:35:19 AM
 #5

No, that's Rate of Return, not Return on Investment. Rate of Return measures a CASH FLOW, while Return on Investment measures the total return.

Rate of return would be used on for example an investment where you invest 1 BTC, and then get 0.2 BTC every month. That would be a rate of return of 20%.

http://en.wikipedia.org/wiki/Return_on_investment
The linked Invesopedia article is on ROI, and the first sentence of the Wikipedia article mentions that ROR is also known as ROI. The page you linked to says: "For a single-period review just divide the return (net profit) by the resources that were committed (investment):
Return on investment (%) = Net profit ($) / Investment ($)"

Say you invest 1 BTC into a pyramid scheme on Bitcoinduit. The listed ROI is 5%, so you can expect to get back 1.05 BTC. If you put that into the equation, the ROI = 0.05 = 5%.
They're not exactly the same thing. Return on Investment is for single periods, as is clear from the Wikipedias usage of the two different terms.

I get 105% ROI when calculating net profit / investment, but it all depends on if you count the initial investment as a cost. Usually you only count overheads and interest when calculating net profit.

But as I wrote in my edited post above, it seems both are correct. Nevermind.
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August 25, 2011, 11:59:12 AM
 #6

Most casinos actually tell you RTP (return to player), which is what you're talking about. You commonly hear that a certain slot machine has a 92% RTP. A 100% RTP means the player breaks even over time. A 100% ROI means you double your investment.

Another way of putting it is that RTP=ROI+1

And the number one reason casinos talk in terms of RTP?  ...drumroll please... because all casinos have a negative expected ROI to the player.

Yuusha
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August 25, 2011, 01:14:18 PM
 #7

Most casinos actually tell you RTP (return to player), which is what you're talking about. You commonly hear that a certain slot machine has a 92% RTP. A 100% RTP means the player breaks even over time. A 100% ROI means you double your investment.

Another way of putting it is that RTP=ROI+1

And the number one reason casinos talk in terms of RTP?  ...drumroll please... because all casinos have a negative expected ROI to the player.
Not according to http://www.fastrak-consulting.co.uk/tactix/features/tngroi/tngroi05.htm and several other sites. There are multiple ways to calculate ROI.
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