Return on Investment (ROI)
Quick Answer
A profitability measure showing the gain or loss relative to the cost of an investment.
Definition
A profitability measure showing the gain or loss relative to the cost of an investment.
Explanation
ROI = ((Current Value − Cost) ÷ Cost) × 100. A 50% ROI means $100 became $150. Simple and versatile, but doesn't account for time. A 50% ROI over 1 year is exceptional; over 10 years it's below average.
Use annualized metrics like CAGR for comparing investments held over different periods.
Example
Buy 100 shares at $50/share ($5,000). One year later, worth $65/share ($6,500). ROI = ($6,500 − $5,000) ÷ $5,000 × 100 = 30%.
Frequently Asked Questions
What is Return on Investment (ROI)?
A profitability measure showing the gain or loss relative to the cost of an investment.
How does Return on Investment (ROI) work?
ROI = ((Current Value − Cost) ÷ Cost) × 100. A 50% ROI means $100 became $150. Simple and versatile, but doesn't account for time. A 50% ROI over 1 year is exceptional; over 10 years it's below average.Use annualized metrics like CAGR for comparing investments held over different periods.
Can you give an example of Return on Investment (ROI)?
Buy 100 shares at $50/share ($5,000). One year later, worth $65/share ($6,500). ROI = ($6,500 − $5,000) ÷ $5,000 × 100 = 30%.
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