Return on investment measures the gain or loss from an investment relative to its cost, expressed as a percentage, to compare the efficiency of different uses of money.
Return on investment = (net gain from the investment ÷ cost of the investment) × 100. It is a simple, widely used yardstick for comparing options, a marketing campaign, a piece of equipment, a hire, by asking how much each dollar invested returned.
ROI's simplicity is also its limit: it ignores the time taken to earn the return and the risk involved, so a 20% ROI over one month is very different from 20% over five years. For that reason it is often paired with time-based measures, but as a quick comparison it remains one of the most used business metrics.
A business spends $10,000 on equipment that generates $13,000 of additional profit. Its ROI is ($3,000 ÷ $10,000) × 100 = 30%, letting the owner compare it against other possible uses of that $10,000.
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