What does ROI mean?
It stands for Return on Investment.
Definition
Return on Investment, or ROI, is a financial metric used to evaluate the profitability of an investment relative to its cost.
Calculation
ROI is calculated by subtracting the initial investment from the final value of the investment, dividing the result by the initial investment, and then multiplying by 100 to express the result as a percentage.
Formula
ROI = [(Gain - Investment) / Investment] x 100
Example
If an investment of 10,000 euros generates 15,000 euros, the ROI would be (15,000 - 10,000) / 10,000 X 100 = 50%.
Interpretation
A 50% ROI means that for every dollar invested, there is a return of $1.50, including the initial investment.
Importance
ROI is crucial for businesses as it aids in decision-making by providing a clear measure of the financial success of an investment.
Application
It is widely used in marketing to assess the performance of campaigns and generally in business to evaluate the efficiency of various investments.