Return on Investment (ROI) is a financial metric used to measure the profitability of an investment. It is calculated by dividing the net profit of an investment by the cost of the investment. The result is expressed as a percentage or a ratio.
ROI is an important metric for businesses to understand because it helps them evaluate the effectiveness of their investments. By calculating ROI, businesses can determine which investments are generating the highest returns and make informed decisions about where to allocate their resources.
ROI can be used to evaluate a wide range of investments, including marketing campaigns, product development, and capital expenditures. It is important to note that ROI is not the only metric that should be considered when evaluating investments. Other factors, such as risk and opportunity cost, should also be taken into account.
Overall, understanding ROI is essential for business success. By using this metric to evaluate investments, businesses can make informed decisions that will help them achieve their financial goals.« Back to Glossary Index