Definition of return on investment:
- Return on investment (ROI) is a measurement of performance used to examine the profitability or efficiency of an investment or a comparison between the efficiency of a number of lots of investments.
- To measure ROI attempts to directly measure the number of returns on a certain investment, relative to the investment’s expenditure.
- The calculation of ROI is the benefit or turn of an investment divided by the cost of the investment. The results are then turned into a percentage or a ratio.
- ROI does not take into consideration the holding period or passage of time regardless of it being simple and straightforward. This then can result in missing an opportunity to invest costs somewhere else.