Here’s Why “Return on Investment” Matters



What Is Return on Investment (ROI)?

Return on investment (ROI) is one of the most common financial metrics used to measure and evaluate the profitability of an investment.


How to Calculate Return on Investment (ROI)

To calculate return on investment, all you have to do is divide the net income of an investment with the cost of investment.

The result is either expressed in a ratio or as a percentage. The higher the ratio for return on investment, the more efficient the investment.

ROI = Net income/cost of investment

Here are some of the benefits to using ROI as a metric to measure the efficiency of an investment made by a company.


  • Simplicity

The return on investment metric is frequently used mainly due to the ease of calculation.


It is straightforward and simply calculated by taking into consideration two variables – the benefits/profits of an investment and the cost of investment.


  • Versatility

The return on investment is also versatile as it can be applied to different aspects.


For example, return on investment can be used to measure stock investment or investment into the expansion of a business operation.


  • Easy to interpret and compare

Aside from the ease and versatility of return on investment, it is also easily interpreted and compared. If an investment’s return on investment is positive, it is probably worthwhile for investors to consider the investment.


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Source Link:https://www.prosperus.asia/education/heres-why-return-on-investment-matters/

Location: Singapore

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