Return on investment (ROI) is a measure of the profitability of an investment. It is calculated by dividing the net gain from an investment by the cost of the investment, expressed as a percentage.
ROI is used to evaluate the efficiency of an investment and to compare the profitability of different investments. A high ROI indicates that an investment has generated a good return, while a low ROI indicates that the investment has not performed well.
To calculate ROI, the net gain from an investment is determined by subtracting the cost of the investment from the total return. For example, if an investment cost $100 and generated a return of $150, the net gain would be $50. The ROI for this investment would be 50%, calculated as follows:
ROI = (Net gain / Cost of investment) x 100%
= ($50 / $100) x 100%
= 50%
ROI is an important metric for businesses and investors to track, as it helps them to understand the performance of their investments and make informed decisions about how to allocate their resources. By comparing the ROI of different investments, businesses and investors can determine which investments are likely to be the most profitable and make decisions accordingly.