Return on Investment, there is no doubt if you work or just interest in financial technology, you already have heard about. Return on Investment (ROI) is the most popular financial metric for evaluating the financial consequences of investments and actions.
What is Return on Investment?
The calculated Return on Investment is a ratio or percentage, comparing net gains to net costs. it provides a direct and easy-to-understand measure of investment profitability. it is considered a measure that used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments.
Do investment returns justify the costs? the financial businessperson enables to respond to this question, they should know the (Return on Investment ) that is a ratio between the net profit and cost of investment resulting from an investment of some resources.
The return on investment formula:
“Gain from Investment” refers to the proceeds obtained from the sale of the investment of interest. so, because ROI is measured as a percentage, it can be easily compared with returns from other investments, allowing one to measure a variety of types of investments against one another.
The best advantage in ROI calculation is that it is flexible and can be manipulated for different uses. A company may use the calculation to compare the ROI on different potential investments, while an investor could use it to calculate a return on a stock.
For example, an investor buys stocks and sells it. and we suggest that the ROI is 20%. The calculation can be altered by deducting taxes and fees to get a more accurate picture of the total ROI. also, The same calculation can be used to calculate an investment made by a company.
although ROI is one of the most used profitability ratios because of its flexibility. There are some limitations to using it. in fact, the ROI calculation can be manipulated, so results may vary between users. so When using ROI to compare investments, it’s important to use the same inputs to get an accurate comparison.