Expressed as a percentage, return on investment (ROI) is a financial ratio that measures the profit generated by an investment relative to its cost. Key factors influencing ROI include the... Return on investment (ROI) is a financial ratio used to calculate the benefit an investor will receive in relation to their investment cost.

Understanding the Context

It is most commonly measured as net income divided by the original capital cost of the investment. The higher the ratio, the greater the benefit earned. In finance, Return on Investment, usually abbreviated as ROI, is a common, widespread metric used to evaluate the forecasted profitability on different investments. Before any serious investment opportunities are even considered, ROI is a solid base from which to go forth.

Key Insights

Return on investment (ROI) or return on costs (ROC) is the ratio between net income or profit to investment (costs resulting from an investment of some resources). A high ROI means the investment's gains compare favorably to its cost. Return on investment (ROI) is a percentage or ratio comparing your costs of an investment to the revenue generated. Here’s how to measure your return on investment (ROI). Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment.

Final Thoughts

It measures how much profit or loss is generated relative to the cost of the investment. ROI is expressed as a percentage, making it easy to compare different investment opportunities. To calculate ROI, the net income (or profit) obtained from an investment is divided by the total cost incurred in making that investment. The ROI formula is as follows: ROI = (Net Income / Total Cost) x 100. For example, if an investment of $1,000 generates a net income of $200, the ROI would be 20%.