Definition: Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It is expressed as a percentage and is calculated by dividing the net profit from an investment by the initial cost of the investment.
Calculation: The formula for ROI is: ROI = (Net Profit / Cost of Investment) × 100. This calculation helps investors and businesses assess the financial return on various types of investments, such as marketing campaigns, new business ventures, or capital projects.
Importance: ROI is crucial for strategic decision-making as it provides insights into the potential financial benefits of an investment relative to its cost. A higher ROI indicates a more profitable investment, guiding businesses in resource allocation and prioritization of projects to maximize returns.
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