ROI, or Return on Investment, is a financial metric used to evaluate the efficiency and profitability of an investment. It helps determine the return generated relative to the investment’s cost.
To calculate ROI, you subtract the initial cost of the investment from the gain (or profit) it produced, divide that result by the initial cost, and then multiply by 100 to express it as a percentage.
A positive ROI means the investment has yielded a profit, whereas a negative ROI indicates a loss. This metric is crucial for investors as it allows them to compare the effectiveness of different investments, guiding decisions on where to allocate resources for maximum financial return.
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