What is Return on Investment?
Return on Investment (ROI) measures the efficiency and profitability of an investment. It is used to evaluate a project's performance by dividing the net profits earned by the total amount of resources invested into it. The higher ROI percentage, the better a project has fared, while low or negative returns indicate that resources were ill-spent.
Importance of ROI Metric
ROI is an important measure of the performance of an investment, as it allows investors to compare the profitability of different investment opportunities and determine which ones are the most attractive. However, it is important to note that ROI is only one factor to consider when evaluating an investment, and other factors, such as the risk and potential growth of the investment, should also be taken into account.
How to calculate return on investment?
Return on investment is calculated by dividing the net profit of the investment by the initial cost of the investment, and it is typically expressed as a percentage.
For example, if an investment has an initial cost of INR 100,000 and it generates a net profit of INR 20,000, the ROI would be 20% (20,000 / 100,000 = 0.2). This means that for every rupee invested in the investment, the investor would earn 20 cents in profit.