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What is the full form of ROI?

Published in Investment Metrics 1 min read

The full form of ROI is Return on Investment.

Understanding Return on Investment (ROI)

Return on Investment (ROI) is a widely used profitability metric to assess the performance of an investment. According to the provided reference, ROI is calculated as a percentage by dividing the net profit (or loss) of an investment by its initial cost or outlay. It essentially tells you how efficiently an investment generates profit relative to the amount of money invested.

How ROI is Calculated

The formula for calculating ROI is:

ROI = (Net Profit / Cost of Investment) * 100

Example:

Let's say you invested $1,000 in a stock and sold it for $1,200.

  • Net Profit: $1,200 (Sale Price) - $1,000 (Initial Investment) = $200
  • ROI: ($200 / $1,000) * 100 = 20%

This means your investment generated a 20% return.

Importance of ROI

ROI is important for several reasons:

  • Investment Evaluation: Helps determine if an investment is profitable.
  • Comparison: Allows you to compare the profitability of different investments.
  • Decision Making: Aids in making informed investment decisions.

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