Return on Investment (ROI)
What It Is:
Return on investment (ROI) measures the gain or loss generated on an relative to the amount of invested. is usually expressed as a percentage and is typically used for personal financial decisions, to compare a company's profitability or to compare the efficiency of different .
The return on formula is:
= ( / Cost of ) x 100
How It Works/Example:
The stock.calculation is flexible and can be manipulated for different uses. A company may use the calculation to compare the on different potential , while an investor could use it to calculate a return on a
= (200 / 1,000) x 100 = 20%
The in the example above would be 20%. The calculation can be altered by deducting taxes and fees to get a more accurate picture of the total .
The same calculation can be used to calculate anmade by a company. However, the calculation is more complex because there are more inputs. For example, to figure out the net profit of an , a company would need to track exactly how much went into the project and the time spent by employees working on it.
Why It Matters:
is one of the most used profitability ratios because of its flexibility. That being said, one of the downsides of the calculation is that it can be manipulated, so results may vary between users. When using to compare , it's important to use the same inputs to get an accurate comparison.
Also, it's important to year than it is over two years.that the basic calculation does not take time into consideration. Obviously, it's more desirable to get a +15% reuturn over one