Return on Investment

Return on Investment (ROI) is a financial metric used to evaluate the efficiency or profitability of an investment. It measures the amount of return on an investment relative to the investment’s cost. ROI is a popular metric because of its versatility and simplicity. It can be used to compare the profitability of different investments or to assess the potential return on a new investment. The higher the ROI, the more favorable the investment is considered to be. # What is Return on Investment (ROI)? ROI is a performance measure used to evaluate the efficiency or profitability of an investment. It is expressed as a percentage and is used to compare the returns of different investments or to assess the potential return on a new investment. ROI helps investors and businesses make informed decisions by providing a straightforward metric to gauge the profitability of their investments. ## How is ROI Calculated? The formula for calculating ROI is straightforward. It is calculated by dividing the net profit from the investment by the initial cost of the investment, and then multiplying the result by 100 to get a percentage. The formula is as follows: \[ \text{ROI} = \left( \frac{\text{Net Profit}}{\text{Cost of Investment}} \right) \times 100 \] ### Example Calculation For example, if you invested $1,000 in a project and earned a net profit of $200, the ROI would be calculated as follows: \[ \text{ROI} = \left( \frac{\$200}{\$1,000} \right) \times 100 = 20\% \] This means that the investment generated a 20% return on the initial investment.