DEFINITION of 'Return On Investment  ROI'
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
The return on investment formula:
In the above formula "gains from investment", refers to the proceeds obtained from selling the investment of interest. Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken.
INVESTOPEDIA EXPLAINS 'Return On Investment  ROI'
Keep in mind that the calculation for return on investment and, therefore the definition, can be modified to suit the situation it all depends on what you include as returns and costs. The definition of the term in the broadest sense just attempts to measure the profitability of an investment and, as such, there is no one "right" calculation.
For example, a marketer may compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product.
This flexibility has a downside, as ROI calculations can be easily manipulated to suit the user's purposes, and the result can be expressed in many different ways. When using this metric, make sure you understand what inputs are being used.
There's so much more to understand about the ROI. Read FYI on ROI: A Guide to Calculating Return on Investment
VIDEO

Return On Equity  ROE
The amount of net income returned as a percentage of shareholders ... 
Return On Capital Employed (ROCE)
A financial ratio that measures a company's profitability and ... 
Active Return
The percentage gain or loss of an investment relative to the ... 
AfterTax Real Rate Of Return
The actual financial benefit of an investment after accounting ... 
Return on Average Capital Employed ...
A financial ratio that shows profitability compared to investments ... 
Nominal Rate Of Return
The amount of money generated by an investment before expenses ...

How do I calculate my portfolio's investment returns and performance?
The first step in calculating returns for your investment portfolio is identifying and gathering the requisite data. Once ... Read Full Answer >> 
Why are some spinoffs taxable and some are taxfree?
The manner in which a parent company structures the spinoff and divests itself of a subsidiary or division determines whether ... Read Full Answer >> 
Why doesn't Warren Buffett own Apple (AAPL) stock?
Warren Buffet claims he simply does not know how to properly evaluate Apple (AAPL) and does not feel confident in his reading ... Read Full Answer >> 
What metrics are used to gauge the effectiveness of a marketing strategy?
Marketing is an essential facet of business operations regardless of industry, consumer base or business size. There exists ... Read Full Answer >> 
What's the most expensive manmade object ever built?
As of April 2015, the International Space Station (ISS) is the most expensive manmade object ever built. The ISS project ... Read Full Answer >> 
Are there ways to invest in gold and get a dividend?
Although gold stocks are not likely to be generally appealing those focused on income investing, there are gold or more general ... Read Full Answer >> 
Are there ETFs that track the drugs sector?
There are several exchange traded funds (ETFs) that track the pharmaceutical sector. These are specialized funds that are ... Read Full Answer >> 
How do managers measure human capital?
Human capital is the knowledge, skill sets and intangible assets that add economic value to an individual. Human capital ... Read Full Answer >> 
How do stockholders use agency theory to affect management?
Stockholders use the principles of agency theory to affect the management of an organization by steering decisions based ... Read Full Answer >> 
What causes human capital to depreciate?
A relative or absolute decline in human capital is most commonly associated with unemployment, the inability to keep up with ... Read Full Answer >> 
What are the due diligence basics for investing in a startup?
Due to the risk involved in investing in a startup, it is important to undertake due diligence to improve your chances of ... Read Full Answer >> 
What is the difference between ROCE and ROI?
Return on capital employed (ROCE) and return on investment (ROI) are two profitability ratios that go beyond a company's ... Read Full Answer >> 
The interest rate used to define the “riskfree” rate of return is the:
a. discount rate. b. 90day Treasury bill rate. c. fiveyear Treasury note rate. d. federal funds rate. Answers: b The ... Read Full Answer >> 
What is the difference between stated annual return and effective annual return?
Essentially, the effective annual return accounts for intrayear compounding, and the stated annual return does not. The ... Read Full Answer >> 
What are the main differences between return on equity (ROE) and return on assets ...
Return on equity (ROE) and return on assets (ROA) are two of the most important measures for evaluating how effectively a ... Read Full Answer >> 
What are the main differences between compound annual growth rate (CAGR) and internal ...
The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. The ... Read Full Answer >> 
Why is return on investment (ROI) a bad measure for calculating longterm investments?
ROI is a performance metric used to evaluate the financial efficiency of an investment, or to compare the relative efficiency ... Read Full Answer >> 
What factors go into calculating social return on investment (SROI)?
Social return on investment (SROI) is a method for measuring values that are not traditionally reflected in financial statements, ... Read Full Answer >> 
How can return on investment (ROI) calculations be manipulated?
Return on Investment (ROI) is a performance metric used to evaluate the financial efficiency of an investment, or to compare ... Read Full Answer >> 
Why is it that when investors realize returns on a mutual fund, its price tends to ...
Mutual funds have been in existence since 1924, when the first openended mutual fund was created. Since then, the market ... Read Full Answer >> 
How does the required rate of return affect the price of a stock, in terms of the ...
First, a quick review: the required rate of return is defined as the return, expressed as a percentage, that an investor ... Read Full Answer >> 
I've heard some "market gurus" claim returns of up to 400% annually. Is this possible?
To answer your question in a word: No! Although we wish such a phenomenal investment system were real, the claims you speak ... Read Full Answer >>

Active Trading
FYI On ROI: A Guide To Calculating Return On Investment
Return on investment is a simple equation that can give you an edge when finetuning your portfolio  here's how to use it. 
Bonds & Fixed Income
Unpredictable Event Or Bad Investment?
When investments head south, your 20/20 hindsight can show you who's at fault. 
Bonds & Fixed Income
Achieving Better Returns In Your Portfolio
We look at three risk factors that best explain the bulk of equity performance. 
Fundamental Analysis
Analyzing Investments With Solvency Ratios
Solvency ratios are extremely useful in helping analyze a firm’s ability to meet its longterm obligations; but like most financial ratios, they must be used in the context of an overall company ... 
Personal Finance
Does Your Investment Manager Measure Up?
These key stats will reveal whether your advisor is a league leader or a benchwarmer. 
Fundamental Analysis
How To Calculate Your Investment Return
How much are your investments actually returning? Find out why the method of calculation matters. 
Fundamental Analysis
The Return On Invested Capital (ROIC)
Return on Invested Capital, or ROIC, is a fundamental method of determining a company's financial performance. It is used to measure how well a company is investing its capital. ROIC is calculated ... 
Investing Basics
Required Rate Of Return
Learn more about this method used in inequity valuation and corporate finance. 
Personal Finance
The ROI Of Space Exploration
NASA's return on investment can't be measured by only by what it gets back in capital. We'll look at what effect NASA spending has on humanity and scientific progress. 
Options & Futures
Why Leveraged Investments Sink
This powerful tool can have you swimming in money or drowning in underwater equity.