Types

• The return on investment can come in several forms. Stocks will mostly create capital gains. Bonds will pay out interest payments. And preferred stock will pay dividends. The return or benefit can comprise any or all of these forms.
  
  

Considerations

• A business always tries to maximize profitability. To accomplish this, many businesses will calculate the return on investment of different order to maximize the return.
  
  

Time Frame

• Several types of calculations for Return on Investment exist. For single-period calculations, the arithmetic return, or yield, and the logarithmic return, or continuous compounded return, would work. For multi-period calculations, an investor would use the arithmetic average rate of return and the geometric average rate of return.
  
  

Benefits

• When an investor's money starts to work hard, the money creates interest and compound interest. In this environment, the investor does not need to work as hard because he is working smart.
  
  

Warning

• Benjamin Graham, who taught the tenants of investing to Warren Buffett, once said you cannot compound interest off of principle that has evaporated. While returns come in several forms, his point to protect the principle investment becomes crucial over time.