ROI (Return On Investment)

What Does ROI Mean? What Does Return On Investment Mean?

ROI or return on investment is a performance measure used to evaluate the efficiency of an investment spent to that of the return received.

Using this measurement can and does show the investor the comparison, usually in percentage, of a return, either in money terms or any other terms that relate to the investment.

To calculate the ROI or benefit of return on an investment one should subtract the investment cost from the investment return (gain), then divide that amount by the cost of the investment and multiply by 100 to give a final percentage figure. You can see more easily the ROI formula as shown below ..

The ROI, return on investment formula:

ROI = [(Gain on investment - Cost of Investment) / Cost of Investment)] *100 (to get the percentage return)

An example might be as follows ..

Cost of investment equals $1200. Gain from investment equals $3263.

ROI Formula works like this ..

$3263 (Gain) minus $1200 (Cost) = $2063 (Net return) divided by the cost ($1200) equals 1.719 X 100 (to bring in the percentage return) equals 171% return.

In the above formula “Gain”, refers to the amount obtained from the investment. The term “Cost” refers to the amount spent on the investment.

Return on investment (ROI) is a very popular metric because of its versatility and simplicity. If an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be considered carefully and in some cases, not be entered into.

Makes sense right?