What is return on investment (ROI)?

Return on investment

What is a return on investment, or ROI? It is the measure of what you have gained (useful output) in relation to what you have paid out (cost of investment). Although output doesn’t necessarily have to be economic, it must be quantifiable in the same terms as the investment in order to calculate ROI. Useful output, or benefit, is the amount of interest or how much your investment has risen in value. ROI is expressed in the form of a percentage.

To calculate ROI, divide the net benefit of your investment (subtracting cost) by the total cost of the investment:

ROI = (Benefit – Cost) / Cost

ROI is used to evaluate the profitability of any given investment, and is often used as a comparative tool between different investments. In the case of a poor investment, ROI can be negative.

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