Return on Investment (ROI) is a financial metric used to evaluate the profitability or efficiency of an investment. It measures the return generated relative to the investment cost, expressed as a percentage. ROI helps investors and businesses assess the potential return of an investment compared to its cost.

Characteristics:
– Calculation: ROI is calculated by taking the net profit from an investment, dividing it by the initial cost of the investment, and then multiplying by 100 to get a percentage.
– Versatility: It can be applied to various types of investments, including stocks, real estate, and business ventures.
– Time Frame: ROI does not account for the time value of money, which means it does not consider how long it takes to achieve the return.
– Comparative Tool: It allows for easy comparison between different investments or projects to determine which one may yield a better return.

Examples:
– If you invest $1,000 in a stock and sell it later for $1,200, your ROI would be calculated as follows:
– Net Profit = $1,200 – $1,000 = $200
– ROI = ($200 / $1,000) x 100 = 20%

• In a business context, if a company spends $50,000 on a marketing campaign and generates an additional $75,000 in revenue as a result, the ROI would be:
• Net Profit = $75,000 – $50,000 = $25,000
• ROI = ($25,000 / $50,000) x 100 = 50%

These examples illustrate how ROI can provide insight into the effectiveness of different investment strategies.