Return on Investment (ROI)
Overview
Return on Investment (ROI) measures the profitability of an investment by comparing the return to its cost.
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Return on Investment (ROI) is a key financial metric used to evaluate the efficiency of an investment or compare the efficiencies of several different investments. The basic formula for ROI is: ROI = (Net Profit / Cost of Investment) x 100. This percentage helps investors determine the potential return on a particular investment relative to its cost.
Understanding ROI is crucial for both businesses and individual investors as it provides a clear metric to assess the performance of investments. Whether it's a marketing campaign, a new business venture, or a stock purchase, ROI helps in making informed decisions by quantifying the expected return. A positive ROI indicates that the investment gains compare favorably to its cost, while a negative ROI suggests the investment is not worthwhile.