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                               RETURN ON INVESTMENT (ROI)

Return on Investment (ROI) is an approximate measure of an investment’s profitability. ROI is calculated by subtracting the initial cost of the investment from its initial value, then dividing this new number by the cost of the investment and finally multiplying it by 100. ROI has a wide range of uses. ROI is used as an indicator to compare different investments with portfolios. The investments with the largest ROI, is usually prioritized, even though the spread of ROI over time-period of an investment should also be taken into account.  

The return is actually the total income that an investor gets from his or her investment every year and is usually quoted as a percentage of the original value of the investment. Usually the investor gets a return on his or her investment in shares or investment-portfolio when they distribute dividends. While the term-good is subjective, many professionals consider a good ROI to be 10.5% or greater for investments in stocks. This number is the standard number because it is the average return of S&P 500, an index that serves as a benchmark of the overall performance of the stock-market.

ROI as well as its related metrics provide a snapshot of profitability, adjusted for the size of the investment assets tied up in the enterprise. ROI is often compared to expected or required rates of return on money invested. ROI is not time-adjusted unlike Net present Value – many sources, although describe it with ‘Year 0’ investment and two to three years’ income. ROI can also extended to other financial gains.