Return on Investment (ROI)

A popular term used in corporate finance to describe the profitability of an investment.

Return on Investment (ROI) is a measure used in corporate finance to explain how profitable it would be to commit to an investment. This measure is really a ratio that suggests that an investor can get back such and such a percentage of their original investment within a specified period. Thus, when faced with multiple investment options, ROI can assist the prospective investor in determining the option with the highest expectations of profits.

ROI is simply calculated by dividing net profit by net cost and multiplying the outcome by 100 to render the ratio in percentage. Moreover, ROI is an absolute measure, so an investment that renders 46% ROI is considered to be twice as profitable as one that renders 23%.

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