Business Dictionary
ROI
Definition
Return on Investment; a performance measure used to evaluate the efficiency of an investment.
Deep Dive
Return on Investment (ROI) is a fundamental performance metric used to evaluate the efficiency and profitability of an investment. It measures the benefit an investor receives in relation to their investment cost, typically expressed as a percentage. The basic formula involves subtracting the initial cost of the investment from its current value, then dividing the result by the cost of the investment. A positive ROI indicates a net gain, while a negative ROI signifies a net loss.
Examples & Use Cases
- 1A marketing campaign costing $10,000 generates $50,000 in new sales, resulting in a 400% ROI.
- 2A company invests $200,000 in new machinery that reduces production costs by $50,000 annually, leading to a 25% ROI in the first year.
Related Terms
ProfitabilityCost-Benefit AnalysisBreak-Even Point