Return on Investment (ROI)

Return on investment (ROI) is a financial ratio used by companies and investors to compare the returns that a potential investment/project will earn versus its cost. ROI is measured as net income from investment divided by the cost of investment. The higher the ROI, the larger the benefit for an investor or company.

ROI = Net Income / Cost of InvestmentSuppose a company plans to invest in a project that is valued at $500,000. 2 years later, it would have fetched $1,000,000.Thus, project ROI = (1,000,000 – 500,000) / (500,000) = 1 or 100%