Quick Definition

Return on Investment (ROI) is a financial metric used to measure the efficiency of an investment, indicating the ratio of net profit to the initial cost of the investment.

Formula

Examples

• 1A company invests $100,000 in new machinery and generates an additional $120,000 in revenue, resulting in a net profit of $20,000. The ROI is 20%.
• 2An investor buys shares in a company for $50,000 and sells them a year later for $60,000, making a $10,000 profit. The ROI in this case is 20%.
• 3A real estate investor purchases a property for $200,000, spends $50,000 on renovations, and sells the property for $300,000, making a $50,000 profit. The ROI is 16.67%.

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