What ROI stands for?
ROI stands for Return on Investment. It is a financial metric that measures the return or profit generated by an
investment, compared to its cost.
The ROI formula is:
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment x 100
In other words, it calculates the percentage increase in value that an investment generates, relative to its
initial cost.
For example, if you invest $1,000 and earn a 20% return on that investment, your ROI would be:
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
= ($200 – $1000) / $1000 x 100
= -$80 / $1000 x 100
= -8%
This means that the investment generated a loss of $80 for every dollar invested, resulting in an ROI of -8%.
ROI is often used to evaluate the profitability of different investments, such as stocks, bonds, real estate, or businesses. It helps investors make informed decisions about where to allocate their funds and how much risk they’re willing to take on.
In general, a higher ROI indicates a more profitable investment, while a lower ROI may indicate a less profitable one.
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