ROI stands for Return on Investment, which is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of different investments. It is a ratio between net income and investment, and a high ROI means that the investments gains compare favorably to its cost. ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. It is one way of relating profits to capital invested and is often compared to expected or required rates of return on money invested.
To calculate ROI, the benefit or return of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio. ROI is a popular metric because of its versatility and simplicity, and it can be used as a rudimentary gauge of an investments profitability. ROI is used in various industries, such as finance, healthcare, and business, to evaluate the profitability of investments and to make informed decisions about future investments.
ROI has some limitations, such as not taking into account the length of time it took to earn the profit or make the loss. Additionally, ROI does not consider other factors that may affect the investment, such as risk, inflation, and opportunity cost. Despite these limitations, ROI is a useful tool for evaluating past business decisions and informing future ones.
