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If you are interested in investing, chances are prospective businesses will apply accountancy formulas to describe the company’s overall financial condition. A return on investment, also known as an ROI, is a ratio of money that is either gained or lost.
Formula:
Return on Investment = (Gains-Cost)/Cost
The return on investment is equal to gains minus cost which are all divided by the cost itself. This is the basic formula for return on investments; however, there are many types of this formula.
Definition
A return on investment is defined as the performance measure that can evaluate the efficiency of an investment. It can also be used to compare the efficiency of various types of investments. Return on investments are a great way to understand an investment in a glance.
Popularity
A return on investment is both simple and versatile. If an investment does not generate a positive return on investment or if there are other kinds of opportunities that have higher return on investment, then it may be wise not to undertake such investments. It may be a good idea to find another investment.
Versatility
A return on investment has many different variations. Keep in mind that this calculation for return on investment can actually be adapted to best fit any type of situation for any type of company. Because of this, flexibility can become a disadvantage. For example, return on investment calculations can be manipulated easily to help suit a user’s purpose. A return on investment can actually be expressed in many different ways. In fact, return on investments can actually become complicated.
Other Names
A return on investment is also known as an ROI, rate of profit, rate of return or return.
