ROI (Return on Investment) is a financial metric used to evaluate the efficiency and profitability of an investment. It measures the amount of return generated compared to the amount of money invested. The ROI calculation helps investors determine the potential returns and make informed investment decisions.
ROI can be calculated using the following formula:
ROI = (Net Profit / Cost of Investment) x 100
where:
Net Profit = Total revenue generated from the investment – Total cost incurred for the investment
Cost of Investment = Original amount invested
For example, if an investment of $100,000 generates a net profit of $10,000, the ROI can be calculated as:
ROI = ($10,000 / $100,000) x 100 = 10%
ROI is expressed as a percentage, and a higher ROI indicates a more profitable investment.
