Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. It measures the amount of return on an investment relative to the investment’s cost.
- ROI is calculated by determining the net profit or return and dividing it by the cost of the investment
- It is usually expressed as a percentage or a ratio
- A higher ROI means a more efficient investment that has made more money relative to its cost
ROI is used to analyze past performance of investments and expected performance of potential future investments. It allows investors to compare how well different investments might perform relative to their costs.
ROI is an important metric for companies to consider when deciding where to allocate funds, as it helps them quantify how well their money is being used to generate returns.
Tracking ROI allows investors and businesses to evaluate which of their investments and expenditures are most effective.