ROI

ROI, or return on investment, is a measurement of performance used to compare the effectiveness of different investments. ROI is calculated by taking the benefit, or return, from an investment and dividing it by the cost of the investment. ROI is expressed as a percentage or a ratio. ROI is popular because of its versatility and simplicity and may be modified for different situations. In different contexts, ROI takes several meanings. ROI for a company can be one way to measure of the effectiveness of management, a measure of profits, of cost savings, or of a company’s ability to earn using its assets (in this case, ROI is calculated as net after-tax profits divided by total assets). ROI may also be used in justifying a project or proposal, based on projected profits from the project and its estimated costs. Sometimes ROI is used to measure returns from efforts to gain market share, enter new markets, or develop infrastructure; in these cases, ROI may be used to measure how effectively an objective was met. By comparing the ROI of different potential projects, a determination on which project to undertake may be made. Also, if an investment does not have a positive ROI or other investments have higher ROI, the investment should not be made. If not careful, ROI calculations may be manipulated to suit the needs of the user, or project manager.

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