Return on Investment (ROI) is simply a measure to help whether an investment is worth while. It basically considers the cost, the benefits and the time value of money. Whether your investing in savings accounts, stocks, real estate, capital upgrades, or new business ventures, estimating a return on investment will aid you in choosing among investment options.

Return on investment can be calculated on post or current investment or on the estimated return on future investment. It does not indicate the period for which the investment is mode. The result is expressed as a percentage or a ratio.

Gain from Investment-Cost of Investment

Cost of Investment

Return on investment is very popular metric because of its versatility and simplicity. That is if an Investment does not have a positive ROI or if there are other opportunities with a higher ROI, then the investment should not be under taken.

Keep in mind that the calculation for ROI can be modified to suit the situation it all depends on what you include as refers and cost. The term in the broadest sense just attempts to measure the profitably of an investment and as such there is no one “right “calculation This Flexibility has a down side, as ROI calculations can be easily manipulated to suit the user’s purposes and the result can be expressed in many different ways. When using this metric, make sure you understand what inputs are being used.