ROI
Return on Investment ”” the percentage gain or loss on an investment relative to its cost.
Also: ROI
Definition
Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment, calculated as (Net Profit / Cost of Investment) x 100%. ROI is a simple, versatile metric used across business, finance, and personal investing to compare the relative profitability of different investments. However, ROI doesn't account for time value of money or risk; more sophisticated metrics like IRR (Internal Rate of Return) and NPV address these limitations.
Example
“Buying a rental property for $200,000 that generates $15,000 in annual net rental income yields an ROI of 7.5%, comparable to stock market historical averages.”
Usage Examples
- 1
“The new CRM system delivered a 320% ROI within 18 months through improved sales conversion.”
- 2
“Before approving the expansion, the board required a detailed ROI analysis from the finance team.”
When & How to Use
Use ROI to evaluate and compare the efficiency or profitability of any investment or business decision.
- ▸Justifying a marketing campaign budget by projecting revenue generated per rupee spent
- ▸Comparing two capital expenditure proposals in a manufacturing plant
- ▸Evaluating whether an employee training programme delivered measurable productivity gains
Etymology & Origin
Acronym: Return On Investment. 'Return' from Old French 'retourner'; 'investment' from Medieval Latin 'investire' (to clothe, to surround with assets).
History & Evolution
The concept of measuring profit against capital employed dates to double-entry bookkeeping in 15th-century Venice. The specific ROI formula was popularised by DuPont Corporation in the 1920s as part of its performance management system.
Synonyms
- return on investment
- investment return
- profit rate
- rate of return
Antonyms / Opposites
- loss
- negative return
Images
CC-licensed · free to useVideo
Related Terms
- irr
- npv
- profitability
- investment