What is Return on Investment (ROI)?

Return on Investment (ROI) is a financial metric that measures the performance of an investment, usually expressed as a percentage. It measures how much money a business makes on an investment relative to the amount invested. The higher the ROI, the more money the business is making on its investment.

How is ROI Calculated?

ROI is calculated by taking the total amount of money earned from an investment and dividing it by the total amount of money invested. The result is then expressed as a percentage.

For example, if a business invests $100 and earns $200, the ROI would be 100%.

ROI Formula:

ROI = (Total Money Earned / Total Money Invested) x 100

What is a Good ROI?

A good ROI is relative to the amount of risk taken and the industry the business operates in. Generally, the higher the ROI, the better the investment. For example, a business that earns a 10% ROI on a low-risk investment may be considered a good return, while a business that earns a 20% ROI on a high-risk investment may be considered a great return.

Benefits of High ROI

There are many benefits to having a high ROI, including:

  • Increased Profits – Higher ROI means higher profits for the business.
  • More Investment Capital – Higher ROI means more money to invest in other projects.
  • Better Decision Making – A higher ROI helps businesses make better decisions about where to invest their money.
  • Increased Shareholder Value – Higher ROI increases the value of a company’s shares.

Conclusion

Return on Investment (ROI) is an important financial metric that measures the performance of an investment. It is calculated by taking the total amount of money earned from an investment and dividing it by the total amount of money invested. A good ROI is relative to the amount of risk taken and the industry the business operates in. Having a high ROI offers many benefits, including increased profits, more investment capital, better decision making, and increased shareholder value.