KEYTAKEAWAYS
Learn how Return on Investment (ROI) assesses business profitability relative to owner/shareholder equity investment, with a simple formula converting gains to a percentage or ratio.
CONTENT
DEFINITION
Return on Investment (ROI) – Measuring Business Profitability Against Equity Investment
Return on Investment (ROI) is a financial metric used to evaluate the efficiency and profitability of a business concerning the equity investment provided by owners or shareholders. It quantifies the benefits (returns) generated from the money invested in the business. To calculate ROI, one divides the gain or net profit derived from the investment by the initial cost of the investment. The result is typically expressed as a percentage or a ratio.
ROI is a fundamental tool for businesses to assess the performance of investments, helping owners and shareholders gauge the value generated from their equity contributions. It enables informed decision-making by comparing returns to costs and determining whether investments are generating satisfactory profits.
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