Return on Investment (ROI)

Definition of Return on Investment (ROI)

A measure of the profitability of an investment, calculated as the net profit divided by the cost of the investment.

Explanation of Return on Investment (ROI)

Return on Investment (ROI) measures the profitability of an investment by comparing the net profit to the initial investment cost. It is a widely used financial metric that helps evaluate the efficiency of an investment and its potential return. ROI is calculated by subtracting the initial investment cost from the net profit, then dividing the result by the initial investment cost, and multiplying by 100 to get a percentage. A higher ROI indicates a more profitable investment. This metric is crucial for businesses to assess the performance of various investments, including marketing campaigns, projects, and assets. ROI helps in making informed decisions about where to allocate resources and which investments to pursue or avoid. It provides a clear picture of the financial gains or losses generated by an investment, aiding in strategic planning and budgeting. Regularly monitoring ROI ensures that investments are aligned with business goals and contribute to overall profitability.

This dictionary entry was written by

Per-Gulbrand Peter Braathen

With a foundation in doctoral-level research, Per-Gulbrand Peter Braathen is a seasoned expert in the areas of marketing, branding and communication. His proficiency extends to marketing management, branding and communication strategy. Braathen's experience is underscored by his rich background from various industries, including entertainment. A distinguished alumnus of the USC Marshall School of Business, Braathen boasts a Master of Science in Marketing, complemented by a Graduate Certificate in the Business of Entertainment from the USC School of Cinematic Arts as well as two undergraduate Bachelor degrees from the esteemed University of Southern California.