Return on investment - ROI

Updated: 2006-10-19 14:11

Return on Investment (ROI) is a measure of a company's ability to use its assets to generate additional value for shareholders. It is calculated as Net Profit divided by Net Worth, and expressed as a percentage.

ROI analysis is one of several approaches to building a financial business case. The term means that decision makers evaluate the investment by comparing the magnitude and timing of expected gains to the investment costs.

Decision makers will also look for ways to improve ROI by reducing costs, increasing gains, or accelerating gains.

In the last few decades, this approach has been applied to asset purchase decisions (computer systems or a fleet of vehicles, for example), "go/no-go" decisions for programs of all kinds (including marketing programs, recruiting programs, and training programs), and to more traditional investment decisions (such as the management of stock portfolios or the use of venture capital).

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