ROI (Return on Investment)

Definition

Return on Investment (ROI) is a performance metric used to evaluate the efficiency of an investment or compare the efficiency of several investments. ROI is calculated by dividing the net profit (or loss) from an investment by the initial cost, expressed as a percentage: ROI = (Current Value - Cost) / Cost × 100. An ROI of 50% means you earned $50 for every $100 invested. While simple and widely used, ROI has limitations — it does not account for the time period of the investment (a 50% ROI over 1 year is very different from 50% over 10 years), risk, or opportunity cost. For time-adjusted returns, CAGR or IRR (Internal Rate of Return) are more appropriate metrics.