Return on Investment (ROI)
Return on Investment (ROI) is a financial metric used to measure the profitability of an investment. It is calculated by dividing the gain from an investment by the cost of the investment. ROI is expressed as a percentage and is typically used to compare the efficiency of different investments. For example, if an investor spends $100 on an investment and earns a return of $120, the ROI would be 20%.
History of Return on Investment
The concept of Return on Investment has been around since the early 1900s. It was first used by financial analysts to compare the performance of different investments. Over time, the concept has been refined and is now used by investors, businesses, and governments to measure the efficiency of their investments. ROI is also used to compare the performance of different investments within the same asset class.
Comparison of ROI
| Investment | Cost | Gain | ROI |
|---|---|---|---|
| Stock A | $100 | $120 | 20% |
| Stock B | $100 | $150 | 50% |
Summary
Return on Investment (ROI) is a financial metric used to measure the profitability of an investment. It is calculated by dividing the gain from an investment by the cost of the investment. ROI is expressed as a percentage and is typically used to compare the efficiency of different investments. For more information on ROI, you can visit Investopedia, The Balance, and other financial websites.
See Also
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Payback Period
- Cost-Benefit Analysis
- Discounted Cash Flow (DCF)
- Earnings Before Interest and Taxes (EBIT)
- Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Cash Flow Return on Investment (CFROI)
- Economic Value Added (EVA)
- Gross Profit Margin
