Return on Investment (ROI)

Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment relative to its cost. It is expressed as a percentage and is calculated using the formula:

ROI = (Net Profit / Cost of Investment) x 100

Where:

• Net Profit is the total Revenue generated from the investment minus the total costs associated with the investment.
• Cost of Investment includes all expenses related to the investment, such as initial costs, maintenance, and operational costs.

For example, if a company invests $10,000 in a Marketing campaign and generates $15,000 in sales, the ROI would be:

ROI = (($15,000 – $10,000) / $10,000) x 100 = 50%

This means that for every dollar invested, the company earned 50 cents in profit.

In another case, if an investor purchases Stocks for $5,000 and later sells them for $6,000, the ROI would be:

ROI = (($6,000 – $5,000) / $5,000) x 100 = 20%

This indicates that the investment yielded a 20% return.