ROI

Finance

Quick Definition

ROI (Return on Investment) is a financial metric used to measure the profitability of an investment by comparing the gain or loss to the initial investment cost.

Detailed Explanation

ROI is one of the most commonly used metrics in finance, business, and investing to evaluate how efficiently money is being used. It helps investors compare different investment opportunities and make better decisions.

Formula

ROI = (Net Profit ÷ Investment Cost) × 100

Where:

  • Net Profit = Selling Price − Cost Price

Key Points About ROI

  • Expressed as a percentage
  • Higher ROI indicates better returns
  • Useful for comparing multiple investments
  • Does not consider time (unlike annualized return)

Uses of ROI

  • Evaluating stock, real estate, or business investments
  • Measuring marketing or project performance
  • Comparing different financial opportunities

ROI is simple and effective but should be used along with other metrics for better analysis.

Example

"<p> If you invest ₹1,00,000 and earn ₹20,000 profit:<br> <strong>ROI = (20,000 ÷ 1,00,000) × 100 = 20%</strong> </p>"

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