Return on Investment or ROI can be defined as a performance measure utilized in order to assess the effectiveness of an investment or contrast with the effectiveness of various investments.
Return on Investment attempts to directly quantify the measure of return on a specific investment, comparative with the investment’s expense.
In order to compute Return on Investment, the benefit or return of an investment is divided by the expense of the investment.
The outcome is communicated as a rate or a proportion.
The formula to calculate return on investment is as follows:
Return on Investment = ( Current Value of Investment − Cost of Investment ) / Cost of Investment
Return on Investment is a well known metric in view of its adaptability and straightforwardness.
Basically, Return on Investment can be utilized as a simple measure of an investment's benefit.
This could be the Return on Investment on a security investment, the Return on Investment an organization expects on extending a plant, or the Return on Investment generated in a real estate exchange.
The calculation itself is not too complex, and it is generally simple to decipher for its wide scope of uses.
In the event that an investment’s Return on Investment is net positive, it is presumably beneficial.
Similarly, investors should keep away from negative Return on Investments, which infer a net loss.