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what is return on investment (ROI)

What is Return On Investment(ROI): How To calculate ROI

ROI stands for Return on Investment, a financial metric used to evaluate profit and the loss of an investment compared to initial investment.ROI is used to calculate net Income divided by original cost of the investment. Investors will get more profit if the ROI rate is high. ROI is used to  calculate a business plan.

ROI is closely related to measures like return on asset(ROA)  and return on equity (ROE).
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How To calculate ROI

There are multiple ways for calculating ROI. The most used formula to calculate ROI is net income divided by the total investment. 

ROI = Net Income / Cost of Investment * 100

What is ROI used for?

ROI is used to measure various investment decisions, compared to their initial investments. Many individuals also calculate the ROI to measure their own personal investment in business.

Why is ROI important?

There serval benefits of ROI the common reasons are follows:

  • To evaluate performance: ROI is used to evaluate the performance of Projects.
  • To make long-term business planning:  ROI will assist in identifying a company’s strengths and areas for improvement. Companies may more confidently make decisions and prepare for business growth with the help of ROI analytics.
  • To Allocated Resources: Effective resource management is necessary for businesses. ROI analysis helps businesses to strategically deploy their human resources, financial management, and technology resources so that investments meet their overall goals and measurable outcomes.

A good percentage of ROI depends on the industry. A positive  return on investment (ROI) that means the company is on profit, negative return on investment that means the company is in loss.

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Find out how to How to calculate break-even point in Airbnb?
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