Return on Investment (ROI) is a performance measure used to evaluate the returns of an investment or to compare the relative efficiency of different investments. ROI measures the return of an investment relative to the cost of the investment.

The Return on Investment (ROI) formula:

Where “Gain from Investment” refers to the amount of profit generated from the sale of the investment, or the increase in value of the investment regardless of whether it is sold or not.

Breaking down Return on Investment
Return on Investment is a very popular financial metric due to the fact that it is a simple formula that can be used to assess the profitability of an investment. ROI is easy to calculate and can be applied to all kinds of investments. Return on investment helps investors to determine which investment opportunities are most preferable or attractive.

The Importance of ROI

Return on Investment, one of the most used profitability ratios, is a simple formula that measures the gain or loss from an investment relative to the cost of the investment. ROI is expressed as a percentage and is commonly used in making financial decisions, comparing companies’ profitability, and comparing the efficiency of different investments.