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Return on Investment (ROI)
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%.