Return on Investment (ROI) is a metric used to evaluate Efficiency or profitability. of an investment. It basically compares. Gain or loss From investment to Costs.
Here’s the ROI breakdown:
- the aim: It helps to estimate. success of investment relative to the resources put into it.
- Calculation: ROI is usually expressed as a. Percentage and is calculated using the following formula:
ROI = (Profit - Cost) / Cost * 100
- Explanation:
- Oh Positive ROI Indicates a to gain from investment, i.e. the profit is greater than the cost.
- Oh Negative ROI means a lossWhere the cost outweighs the benefit.
- Oh Zero ROI Investment means broke downwith neither profit nor loss.
Applications of ROI:
- Review of stock market performance
- Making business decisions such as choosing between projects
- Evaluating the effectiveness of marketing campaigns
- Comparison of performance of different investments
It’s important to remember that although ROI is a valuable tool, it has some limitations:
- Does not consider the time value of money: A dollar today is worth more than a dollar yesterday. ROI does not factor into this.
- May not be suitable for all types of investments: ROI for financial investments is easier to quantify than intangible benefits such as improved customer satisfaction.
Overall, the ROI is a. A useful metric To understand Relative performance of an investment, but should be used in conjunction with other factors when making investment decisions.
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