What Is Return on Investment?

Definition of return on investment

Return on Investment (ROI) is a quality metric used to determine an investment’s validity and assess the variety of different ventures. ROI aims to calculate explicitly the amount of return on a single investment, compared to the cost of the investment.

Its flexibility and simplicity make ROI a prominent metric. Fundamentally, ROI can be used as a simplistic gage of investment productivity. This may be the ROI on a stock purchase, the ROI that a company expects to expand, or the ROI that was created in a real estate context.

The equation process isn’t too complex, and its wide variety of implementations makes it fairly easy to understand. If the ROI is a positive net, it is certainly worth it. On the other hand, there are other resources available with higher ROIs and those will help investors in excluding or selecting the right choices.

Because of its versatility ROI is one of the most commonly used measures of productivity. That being said, one of the disadvantages of the ROI equation is that it can be distorted such that results can differ from user to user. It ‘s important to use the same inputs when using ROI to compare investments in order to get an appropriate analogy.

Based on what ROI methods are used in the analysis, an ROI calculation can vary between two individuals. The property estimate discussed in the example section can be used by a marketing manager without accounting for extra costs such as cost of maintenance, real estate taxes, transaction fees, customs duty, and litigation fees.

A shareholder has to focus on the true ROI, which accounts for all future expenses incurred when the value of each investment increases. Return on investment is a commonly recognized term and if you use the metric in conversation. We can almost assure you that people will know what you’re talking about.