What is “Return on Investment (ROI)” meaning?

ROI is a key performance indicator used by businesses to assess the profitability of an investment. It is calculated by dividing the net profit from the investment by its original cost and multiplying by 100 to get a percentage. A higher ROI indicates a more profitable investment.

Example

“After launching the new product line, the company saw a return on investment of 30%, indicating a successful marketing campaign.”

How is “Return on Investment (ROI)” used in business?

Businesses use ROI to evaluate various investments, whether they are in marketing, new equipment, or expansion projects. It helps business owners, investors, and managers make decisions about where to allocate resources to maximize returns.

Pro Tip

While ROI is a valuable tool, ensure to account for any external factors, like market trends or one-off events, that might skew the numbers.

Related Terms

Net Profit, Cost-Benefit Analysis, Capital Budgeting, Investment Analysis