What is ROI – definition

Published: 30.05.22Management
What is ROI – definition

ROI, or Return on Investment, is a financial metric used to measure the profitability of an investment in relation to the amount of money invested. It is expressed as a percentage and is used to evaluate the success of an investment.

The formula for calculating ROI is:

ROI = (Net Profit / Cost of Investment) x 100%

Net Profit is calculated by subtracting the total cost of investment from the total revenue generated from the investment. The cost of investment includes all costs associated with the investment, including purchase price, installation, maintenance, and any other expenses.

ROI is a useful tool for businesses and investors to determine the profitability of a project or investment. It helps businesses to make informed decisions about where to invest their resources and to evaluate the success of their investments. A high ROI indicates that the investment is profitable, while a low ROI suggests that the investment is not generating enough revenue to justify the cost.

While ROI is an important metric, it should not be the sole factor in decision making. Other factors such as risk, opportunity cost, and long-term impact should also be considered when evaluating an investment. Nonetheless, ROI remains a key indicator of financial success for businesses and investors alike.

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