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Return on Investment (ROI)
Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment.
What is Return on Investment (ROI)?
Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It compares the gain or loss from an investment relative to its cost.
ROI Formula
The basic ROI formula is:
ROI = (Net Profit / Cost of Investment) × 100
Where:
- Net Profit = Final Value of Investment - Initial Cost of Investment
- Cost of Investment = Total amount invested
Example
If you invest $1,000 and it grows to $1,200, your ROI would be:
ROI = (($1,200 - $1,000) / $1,000) × 100 = 20%
Use Cases
ROI is commonly used to:
- Compare the efficiency of different investments
- Make decisions about capital allocation
- Evaluate business projects and initiatives
- Assess marketing campaign effectiveness
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