Return On Investment Definition
ROI is commonly used to measure the performance of an investment, and can be expressed as a ratio or percentage. The higher the ROI, the better the investment is performing. To calculate ROI, simply divide the net profit of an investment by the cost of the investment. The result will be a decimal number that can be multiplied by 100 to get a percentage.
For example, if an investor spends $100 on an investment that returns $200, their ROI would be 200%. To calculate this, divide 200 by 100 to get 2. This number is then multiplied by 100 to get 200%.
It’s important to note that ROI isn’t always about making money. In some cases, it may be more important to focus on generating positive cash flow or breaking even. For example, a business might invest in new equipment to save on labor costs. In this case, even though there may not be an immediate profit from the investment, the ROI would still be positive because of the savings generated.
